ons Question 4 2 points saved When production of a good gene

ons Question 4 (2 points) saved When production of a good generates external (spillover) costs, the demand curve for the good will overstate the true social benefnts from consumption of the good. demand curve for the good will understate the true social benefts from consumption o the good supply curve for the good will overstate the true social cost of producing the good. supply curve for the good will understate the true social cost of producing the good.

Solution

Answer for question 4

When production of good generates external costs then private market for that good tends to produce too much of the produce at too low price

Therefore this will understate the true social cost

Hence for question 4 correct answer is option D

Answer for other question

As far as my understanding of these curves is concerned when MSB curve lies above MPB it states the positive externalities and negative externality in opposite case

Therefore we would have external spillover benefits here

Hence option A is correct answer