An environmental activist describes an Environment Canada requirement for a $700 air pollution control device for all cars as a policy that leads to the socially optimal reduction in pollution.In terms of the diagram above,for this to be true,it must be the case that the
A) marginal cost is lower than MC.
B) marginal benefit is lower than MB.
C) true marginal cost is greater than MC.
D) true marginal benefit is greater than MB.
E) marginal benefit is the only issue to consider.

Question

Quizplus · Accepted Answer

For the policy to lead to the socially optimal reduction in pollution, the true marginal benefit (the benefit to society as a whole) of reducing pollution must be greater than the marginal benefit to the individual car owners. The $700 cost of the air pollution control device would be the marginal cost to the individual car owners. Therefore, if the true marginal benefit of reducing pollution is greater than $700, then the policy would result in the socially optimal reduction in pollution. So, D is the best choice since it implies that the true marginal benefit is greater than the individual marginal benefit.

An Environmental Activist Describes an Environment Canada Requirement for a $700