Figure 5-2 illustrates the market for a product that generates an external cost. S1is the private market supply curve, while S2is the supply curve including the external cost. Which of the following is true?

Relative to economic efficiency, output of the good will be too small and the price too low.

Relative to economic efficiency, output of the good will be too small and the price too high.

Relative to economic efficiency, output of the good will be too large and the price too high.

Relative to economic efficiency, output of the good will be too large and the price too low.