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 social efficiency.
D)The government is allocating resources inefficiently.

Question

Quizplus · Accepted Answer

Market signals resulting in pollution beyond the optimal level indicate market failure in achieving social efficiency. This is because firms are not taking into account the negative externalities of their production activities on the environment. A laissez faire approach, which allows firms to continue their activities without any intervention, will only worsen the pollution problem. Instead, government intervention in the form of regulation or taxation can help to internalize the external costs of pollution and incentivize firms to reduce their emissions to the socially optimal level. So, options A, B, and D are incorrect.

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