Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete, and the cost of replanting the trees is approximately $10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?
A) Private marginal cost plus the $10 replanting charge.
B) Private marginal cost plus the $10 emission control charge.
C) Only the $20 of replanting and emission control charges, because the other costs are private, not social.
D) Private marginal cost plus the $20 of replanting and emission control charges.

Question

Quizplus · Accepted Answer

The true social cost of coal fired electricity should include the private marginal cost (the cost of extracting, producing and transmitting the electricity) plus the costs of replanting and emission control, which are externalities that affect society as a whole. Therefore, the best choice is D, which includes both costs for a total of $20 per ton.

Much of the Nation's Coal Is Extracted by Strip Mining