In the figure given below,D 1 and S 1 are the private demand and supply curves,of a commodity produced by a competitive firm.S 2 reflects the social marginal cost of production,while S 0 represents the external marginal cost.
-Refer to Figure 20-1.If the government levies a tax of $28 per unit of output,then:
A)the marginal social benefit will exceed the marginal social cost and the good will be underproduced.
B)marginal social cost will exceed the marginal social benefit and the good will be underproduced.
C)marginal social benefit will exceed the marginal social cost and the good will be overproduced.
D)marginal social cost will exceed the marginal social benefit and the good will be overproduced.

Question

In the figure given below,D 1 and S 1 are the private demand and supply curves,of a commodity produced by a competitive firm.S 2 reflects the social marginal cost of production,while S 0 represents the external marginal cost. 
-Refer to Figure 20-1.If the government levies a tax of $28 per unit of output,then:
A)the marginal social benefit will exceed the marginal social cost and the good will be underproduced. 
B)marginal social cost will exceed the marginal social benefit and the good will be underproduced. 
C)marginal social benefit will exceed the marginal social cost and the good will be overproduced. 
D)marginal social cost will exceed the marginal social benefit and the good will be overproduced.

Quizplus · Accepted Answer

A tax increases the cost of production, leading to a decrease in output. If the marginal social benefit exceeds the marginal social cost, it indicates that the good is underproduced as the tax discourages production below the socially optimal level.

In the Figure Given Below,D1 and S1 Are the Private

In the Figure Given Below,D₁ and S₁ Are the Private