Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ________ and the market equilibrium quantity will be ________.
A)inefficiently high; inefficiently low
B)inefficiently high; inefficiently high
C)inefficiently low; inefficiently high
D)inefficiently low; inefficiently low

Question

Quizplus · Accepted Answer

In this case, the cost of expanding output will not be fully reflected in the market supply curve for cotton, so the equilibrium quantity of cotton will be inefficiently high and the price of cotton will be inefficiently low.

Suppose the Production of Cotton Causes Substantial Environmental Damage Because