Firms that emit toxins into the air tend to
A)underproduce because the private cost of production exceeds the social cost
B)overproduce because the social cost of production exceeds the private cost
C)produce the same as nonpolluting firms
D)produce at the socially optimal amount
E)cover pollution costs in the product's price

Question

Quizplus · Accepted Answer

Firms that emit toxins into the air tend to overproduce because the social cost of production exceeds the private cost. This means that while the firm incurs costs from producing the good or service, there are additional costs to society in terms of the pollution that is created. Since the firm does not bear the full cost of this pollution, they have an incentive to overproduce, which leads to a negative impact on society.

Firms That Emit Toxins into the Air Tend to