-Producing leather creates external costs in the form of water pollution.The figure above illustrates the market for leather.In the absence of any government regulation,how many tons of leather will be produced?
A) 0 tons
B) 200 tons
C) 300 tons
D) more than 300 tons
E) None of the above answers is correct.

Question

-Producing leather creates external costs in the form of water pollution.The figure above illustrates the market for leather.In the absence of any government regulation,how many tons of leather will be produced?
A) 0 tons 
B) 200 tons 
C) 300 tons 
D) more than 300 tons 
E) None of the above answers is correct.

Quizplus · Accepted Answer

In the absence of government regulation, the market will produce leather up to the point where supply equals demand, which typically exceeds the socially optimal level due to external costs like water pollution not being accounted for in the production decisions. This results in production levels of more than 300 tons, as lower quantities would be at points where demand still exceeds supply.

-Producing Leather Creates External Costs in the Form of Water