In the figure given below,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits.
-Refer to Figure 20-2.If the government provides a subsidy of $8 per unit of output,then the:
A)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,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits. 
-Refer to Figure 20-2.If the government provides a subsidy of $8 per unit of output,then the:
A)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 subsidy reduces the cost of production, leading to increased production. If the marginal social cost exceeds the marginal social benefit, the good will be overproduced.

In the Figure Given Below,the Competitive Supply Curve of a Commodity