In the following figure,the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-Refer to Figure 12.2.The regulation will benefit the society if:

Question

In the following figure,the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2  In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-Refer to Figure 12.2.The regulation will benefit the society if:

Quizplus · Accepted Answer

The regulation will benefit society if the reduction in pollution (area IGQ) from the shift from S₁ to S₂ is greater than the increase in cost to produce automobiles resulting from the regulation (area AECJ). Therefore, choice C is correct as it compares the size of these two areas. The other choices are incorrect because they either compare irrelevant areas or do not take into account the tradeoff between pollution reduction and increased production costs.

In the Following Figure,the First Panel Shows a Market Situation