When a paper producer pollutes the air, economists argue that there is
A) efficiency, if production is at its maximum level.
B) a positive externality.
C) an external cost.
D) a cost paid solely by the firm.

Question

Quizplus · Accepted Answer

When a paper producer pollutes the air, it creates negative effects on the environment and the health of people living in the area, which is an example of an external cost. This cost is not paid by the firm alone, but by the society at large, as it affects their well-being. Therefore, the correct option is C. Option A is incorrect because efficiency cannot be achieved at the cost of external costs. Option B is incorrect because a positive externality refers to beneficial effects that spill over from one party to another, which is not the case here. Option D is incorrect because the cost is shared by the society and not just the firm.

When a Paper Producer Pollutes the Air, Economists Argue That