Suppose that a vehicle is invented such that it emits no pollutants into the atmosphere. To achieve an efficient market outcome, the government must:
A) outlaw SUV and other vehicles that pollute the environment.
B) allow other vehicles that emit pollutants into the atmosphere, as long as vehicle owners pay all the costs associated with their pollution.
C) require all auto makers to produce the vehicles that produces zero emissions.
D) be the sole producer of that vehicle.

Question

Quizplus · Accepted Answer

Allowing vehicles that emit pollutants into the atmosphere as long as the owners pay for the associated costs of pollution is the most efficient market outcome, as it allows for a market-driven solution rather than government intervention. Outlawing certain types of vehicles or requiring all auto makers to produce zero-emission vehicles would limit consumer choice and could hurt the economy. The government being the sole producer of the vehicle would also limit competition and innovation in the market.

Suppose That a Vehicle Is Invented Such That It Emits