(Figure: Efficiency and Pollution) Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.If the government imposed an environmental standard that did NOT allow the quantity of pollution to exceed 40 tons,there would be:

A) a socially optimal quantity of pollution.
B) too little pollution because its marginal social benefit would exceed its marginal social cost.
C) too much pollution because its marginal social cost would exceed its marginal social benefit.
D) too much pollution because any pollution is too much from an economist's perspective.

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Rafael R Hinojosa · Accepted Answer

Final Answer : C, Explanation :  According to the figure, the socially optimal level of pollution is at Qso where MSC=MSB. However, in the absence of government intervention, firms would choose to pollute at a level where MPB=MPM, which is at Qf. This results in too much pollution from a societal perspective as MSC>MSB. If the government imposes an environmental standard that does not allow pollution to exceed 40 tons, then firms will still choose to pollute at Qf, even though it is above the socially optimal level. This would result in too much pollution because the marginal social cost of pollution at Qf is higher than its marginal social benefit. Therefore, the correct answer is C - too much pollution because its marginal social cost would exceed its marginal social benefit.

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