The Following Questions Refer to the graph below. -Assume that the current market demand and supply curves for Z are D₂ and S₂.If there are positive social spillovers associated with the production of Z: A)Government should levy a per unit tax on Z to shift the supply curve toward S₁ B)An output greater than 0G would improve resource allocation C)Government should levy a per unit tax on Z to shift the demand curve toward D₁ D)An output smaller than 0G would improve resource allocation E)Both (a)and (d)

Question

Quizplus · Accepted Answer

Positive social spillovers from the production of Z suggest that the social value of Z is higher than the private value reflected in the market demand curve. Therefore, increasing production beyond the current equilibrium (greater than 0G) would improve resource allocation by capturing the benefits of the positive externalities.

The Following Questions Refer to the Graph Below