Air pollution creates a negative externality.Which of the following results
A)Welfare will be enhanced when some air pollution is eliminated.
B)Social welfare is optimal when all air pollution is eliminated.
C)Governments can regulate the market to eliminate all pollution.
D)The free market result maximizes social welfare.

Question

Quizplus · Accepted Answer

When some air pollution is eliminated, welfare will be enhanced. However, eliminating all air pollution may not be feasible or cost-effective. Therefore, the optimal solution is to reduce air pollution to a level where marginal benefits equal marginal costs. Government regulation or intervention may be necessary to achieve this balance. The free market result may not necessarily maximize social welfare in the case of negative externalities.

Air Pollution Creates a Negative Externality