Chapter 14R, Problem 5MCQ

To determine

The correct option when the economy is producing the socially optimal amount of pollution.

Answer to Problem 5MCQ

From the available options, the correct option is the marginal social benefit of pollution equals the marginal social cost.

Explanation of Solution

The socially optimal level of pollution is the level where the cost of producing one more unit of pollution is equal to the benefit of producing one more unit of pollution which means it is the level where the marginal social benefit of pollution equals the marginal social cost.

Here, the correct option is d (the marginal social benefit of pollution equals the marginal social cost). Whereas, external benefits or external costs from pollution are not produced by producers or consumers but social benefits or costs from pollution are produced by producers or buyers. Therefore, options: a, b, c, and options e are incorrect.

Here, the correct option is d (the marginal social benefit of pollution equals the marginal social cost).

Economics Concept Introduction

Introduction: Externality problems such as pollution refer to the fundamental economic policy problems while firms do not internalize the indirect costs or indirect benefits from any of their economic transactions in the market.