-A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. The marginal social cost, private marginal cost, and marginal social benefit from producing chemicals are in the figure above. If polluting is legal and no one owns the lake into which waste is dumped, then the amount of chemicals produced each week will be

Question

Quizplus · Accepted Answer

When polluting is legal and no one owns the lake, the factory will produce chemicals up to the point where the private marginal cost equals the marginal social benefit, ignoring the external costs. This typically results in overproduction compared to the socially optimal level, which is represented by the intersection of marginal social cost and marginal social benefit.

-A Chemical Factory and a Fishing Club Share a Lake