If the supply curve fails to capture all of the costs of production,then the
A) equilibrium price is efficient but the quantity will be too large.
B) equilibrium price and quantity are still efficient.
C) government needs to impose regulations on the industry.
D) equilibrium price is inefficiently low.
E) equilibrium price is inefficiently high.

Question

Quizplus · Accepted Answer

When the supply curve does not reflect all the costs of production, the equilibrium price will be too low, leading to an inefficiently low level of production. This is because producers do not account for their full costs, and therefore supply too much at too low a price, leading to a deadweight loss in the economy.

If the Supply Curve Fails to Capture All of the Costs