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Figure: Efficiency and Pollution
-(Figure: Efficiency and Pollution)Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons,there would be:
A)a socially optimal quantity of pollution.
B)too little pollution because its marginal social benefit would exceed its marginal social cost.
C)too much pollution because its marginal social cost would exceed its marginal social benefit.
D)too much pollution because any pollution is too much from an economist's perspective.

Question

Use the following to answer question:
Figure: Efficiency and Pollution 
-(Figure: Efficiency and Pollution)Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons,there would be:
A)a socially optimal quantity of pollution. 
B)too little pollution because its marginal social benefit would exceed its marginal social cost. 
C)too much pollution because its marginal social cost would exceed its marginal social benefit. 
D)too much pollution because any pollution is too much from an economist's perspective.

Quizplus · Accepted Answer

Given that firms benefit from pollution and the costs are external to them, setting a limit at 20 tons where the marginal social benefit of pollution still exceeds its marginal social cost means that the pollution level is less than the socially optimal level. This is because the optimal level is reached when the marginal social cost equals the marginal social benefit.

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