-Refer to the diagram above.The reason the invisible hand does not allocate resources efficiently in the market is that
A) there is too much demand.
B) the private supply curve,S1,does not include the external cost of production.
C) the social supply curve,S,includes the external cost of production.
D) the private supply curve,S,does not include the external cost of production.
E) equilibrium cannot be achieved.

Question

-Refer to the diagram above.The reason the invisible hand does not allocate resources efficiently in the market is that
A) there is too much demand. 
B) the private supply curve,S1,does not include the external cost of production. 
C) the social supply curve,S,includes the external cost of production. 
D) the private supply curve,S,does not include the external cost of production. 
E) equilibrium cannot be achieved.

Quizplus · Accepted Answer

The private supply curve, S1, does not include the external cost of production. This means that the market price of the good is too low, and too much of the good is produced.

-Refer to the Diagram Above