Pollution is an externality, this means
A)the free market allows households and firms to consume a minimal amount of clean air.
B)it is in the public interest to reduce pollution levels to zero.
C)individuals and firms consume "free" air wastefully.
D)the pricing system sets clean air at a high price.

Question

Quizplus · Accepted Answer

Pollution is an externality because individuals and firms consume "free" air wastefully and do not bear the full cost of the pollution they create. This leads to an inefficient outcome where pollution levels are higher than what would be socially optimal. A market-based approach, such as implementing a tax on pollution or creating a cap-and-trade system, can help correct this externality by incentivizing individuals and firms to reduce their pollution levels to a socially optimal level.

Pollution Is an Externality, This Means