Because air cargo as an industry involves the generation of pollutants in engine exhaust, the equilibrium price of air cargo services:
A) is above the optimal level, and quantity is below the optimal level.
B) is below the optimal level, and quantity is above the optimal level.
C) and quantity of trucking services are both above the optimal level.
D) and quantity of trucking services are both below the optimal level.
E) must fall in order for the market to reach equilibrium.

Question

Quizplus · Accepted Answer

The generation of pollutants represents a negative externality, which typically leads to a market outcome where the price is lower and the quantity produced is higher than the socially optimal level. This is because the external costs to society (e.g., pollution) are not fully accounted for in the market price.

Because Air Cargo as an Industry Involves the Generation of Pollutants