Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This ﬁgure
Suggests that there is (are)
A) external beneﬁts from the production of this product.
B) external costs in the production of this product.
C) currently an underallocation of resources toward producing this product.
D) positive externalities from producing the product.

Question

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This ﬁgure
Suggests that there is (are)
A) external beneﬁts from the production of this product. 
B) external costs in the production of this product. 
C) currently an underallocation of resources toward producing this product. 
D) positive externalities from producing the product.

Quizplus · Accepted Answer

The graph shows that the current supply (line S) is above the optimal supply from society's perspective (line S1), indicating that there are external costs in the production of this product. This suggests that resources are being overallocated towards producing this product, creating negative externalities in the form of external costs. Therefore, the best choice is B, external costs in the production of this product.

Refer to the Provided Supply and Demand Graph for a Product