Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers,
A) the marginal social cost curve is above and to the right of the demand curve.
B) the marginal social cost curve is below and to the left of the demand curve.
C) the marginal social cost curve is above and to the left of the supply curve.
D) the marginal social cost curve is below and to the right of the supply curve.
E) there is a gap between quantity supplied and quantity demanded in equilibrium.

Question

Quizplus · Accepted Answer

The marginal social cost (MSC) includes both the private costs incurred by producers and the external costs (such as air pollution) borne by society. Since producing plastic containers generates air pollutants, the MSC is higher than the private cost reflected in the supply curve. Therefore, the MSC curve is positioned above and to the left of the supply curve, indicating that the true cost of producing an additional unit is higher than what the market supply curve suggests.

Constructing Plastic Containers Produces Air Pollutants