Figure: Efficiency and Pollution
(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution.If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons, there would be:
A)a socially optimal quantity of pollution.
B)too little pollution, because the marginal social benefit of pollution would exceed the marginal social cost of pollution.
C)too much pollution, because the marginal social cost of pollution would exceed the marginal social benefit of pollution.
D)too much pollution, because any pollution is too much from an economist's perspective.

Question

Quizplus · Accepted Answer

In the given figure, the socially optimal quantity of pollution occurs when the marginal social cost of pollution equals the marginal social benefit of pollution, which is at the point where the supply and demand curves intersect. However, if the government imposes an environmental standard that restricts the quantity of pollution to 20 tons, then the market equilibrium shifts to the left, resulting in a new equilibrium where the marginal social benefit of pollution exceeds the marginal social cost of pollution. Therefore, there would be too little pollution, as the market will not produce as much pollution as is socially optimal.