Refer to Externality graph above. Quantity A is the current equilibrium level of output of this product and Quantity B is the socially optimal level of output for the society.

S is the supply curve that includes private costs.

St is the supply curve that includes public costs.

The S$=$D curves on the graph indicates there is $($are$)$:

Question $40$ Answer

a$.$

an underallocation of resources to product production.

b$.$

spillover costs from the production of this product.

c$.$

positive externalities from product production.

d$.$

spillover benefits to the production of this product.