-Exhibit N-3 depicts a market showing the demand curve for a good and two supply curves, one reflecting the industry's private costs; the other reflecting the costs of resources to society producing the good. It is clear from this representation of the market that the market would choose a price which is too ___________ and an output which istoo __________.
A) high; low
B) low; low
C) high, high
D) low; high
E) valuable; constant

Question

-Exhibit N-3 depicts a market showing the demand curve for a good and two supply curves, one reflecting the industry's private costs; the other reflecting the costs of resources to society producing the good. It is clear from this representation of the market that the market would choose a price which is too ___________ and an output which istoo __________.
A) high; low 
B) low; low 
C) high, high 
D) low; high 
E) valuable; constant

Quizplus · Accepted Answer

When a market only considers private costs and ignores the broader social costs of producing a good, it tends to result in a price that is too low and an output that is too high. This is because the external costs to society are not reflected in the market price, leading to overproduction.

-Exhibit N-3 Depicts a Market Showing the Demand Curve for a Good