Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external costs associated with the production of Z, then
A)a price lower than B and an output greater than G would improve resource allocation.
B)government should levy a per-unit excise tax on Z to shift the demand curve to the right.
C)government should levy a per-unit excise tax on Z to shift the supply curve toward S₁.
D)government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.

Question

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external costs associated with the production of Z, then
A)a price lower than B and an output greater than G would improve resource allocation. 
B)government should levy a per-unit excise tax on Z to shift the demand curve to the right. 
C)government should levy a per-unit excise tax on Z to shift the supply curve toward S₁. 
D)government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.

Quizplus · Accepted Answer

The Answer of  Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external costs associated with the production of Z, then
A)a price lower than B and an output greater than G would improve resource allocation. 
B)government should levy a per-unit excise tax on Z to shift the demand curve to the right. 
C)government should levy a per-unit excise tax on Z to shift the supply curve toward S₁. 
D)government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.

Refer to the Competitive Market Diagram for Product Z