At the market output and price for a good whose production causes pollution,
A)pollution is eliminated
B)the marginal social cost of production exceeds the marginal social benefit of production
C)the private cost of production equals the private benefit of production
D)the marginal social benefit of production equals the marginal social cost of production
E)too little of the good is produced

Question

Quizplus · Accepted Answer

If the production of a good causes pollution, then the marginal social cost (MSC) will be greater than the private cost (MC). This is because the social cost includes the negative externality of pollution that is not taken into account by the producer. As a result, the market will produce too much of the good as it does not take into account the negative externalities or costs imposed upon society by the pollution. The market equilibrium will occur where the marginal social benefit (MSB) equals the MC, which is not efficient as the MSB is greater than the MSC. Therefore, the best answer is B, which is consistent with the market failure due to negative externalities.

At the Market Output and Price for a Good Whose