Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. The social cost of producing the steel includes the:
A) private costs of the steel producers and the price consumers pay for the steel
B) private costs of the steel producers and the costs to the bystanders affected by the pollution
C) costs to the bystanders affected by the pollution only
D) price consumers pay for the steel

Question

Quizplus · Accepted Answer

The social cost of producing the steel includes both the private costs of the steel producers (such as labor, materials, and other expenses) and the external costs of pollution, which affect bystanders. Therefore, the correct answer is B, which includes both the private costs and the costs to bystanders affected by the pollution.

Suppose That a Steel Factory Emits a Certain Amount of Air