If market signals result in pollution beyond the optimal level,then
A)The economy experiences government failure.
B)A laissez faire approach will reduce the level of pollution.
C)The market mechanism has failed to achieve efficiency.
D)The government is allocating resources inefficiently.

Question

Quizplus · Accepted Answer

If market signals result in pollution beyond the optimal level, it means that the market is not achieving efficiency, as the negative externalities of pollution are not being accounted for in the market price. This is a market failure. A laissez faire approach will not necessarily reduce the level of pollution, as it relies solely on the market mechanism, which has already failed to achieve efficiency in this case. The government may need to intervene to correct this market failure through policies such as taxes, cap-and-trade systems, or regulations. Therefore, options A, B, and D are incorrect.

If Market Signals Result in Pollution Beyond the Optimal Level,then