Suppose that a firm is located along a river.The firm uses water from the river to cool its machinery and returns the water to the river several degrees warmer,which has led to a decline in the fish population downstream of the firm.
If the firm does not have to pay for the damage to the downstream fish,the market equilibrium price will be ________ and the market equilibrium quantity will be _____.
A)inefficiently high;inefficiently low
B)inefficiently high;efficient
C)inefficiently low;inefficiently high
D)efficient;inefficiently low

Question

Quizplus · Accepted Answer

Market equilibrium is not efficient when all costs and benefits are not accounted for.In this case,the firm's calculated costs are lower than the total social costs so it produces more than is socially optimal.

Suppose That a Firm Is Located Along a River