Because trucking as an industry involves the generation of pollutants in engine exhaust,
A) the supply curve of trucking services overstates the true cost of providing those services.
B) the supply curve of trucking services understates the true cost of providing those services.
C) the demand curve for trucking services overstates the true benefit of providing those services.
D) the demand curve for trucking services understates the true benefit of providing those services.
E) the market for trucking services will always be away from equilibrium by an amount equal to the value of the externality.

Question

Quizplus · Accepted Answer

The generation of pollutants in engine exhaust is a negative externality associated with the trucking industry. Therefore, the supply curve of trucking services will be shifted to the right (i.e., overstated) because producers do not fully account for the cost of the negative externality. As a result, the equilibrium quantity of trucking services will be higher than the socially optimal level, and the price will be lower than the true cost of providing those services. Thus, the supply curve of trucking services understates the true social cost of providing those services.

Because Trucking as an Industry Involves the Generation of Pollutants