If there are external or spillover benefits associated with consumption and production of a product, it can be said that the:
A. government should consider prohibiting the production of the commodity.
B. demand curve understates the total benefit from the product and resources are underallocated to its production.
C. government should consider placing a special tax on producers.
D. supply curve for the product lies too far to the right to provide an efficient allocation of resources.
Answer: B
Economics
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