The figure given below depicts the relationship between the social benefits and social costs associated with different levels of pollution. The two curves are Social Marginal Cost (SMC) and Social Marginal Benefit (SMB). The other terminologies are P = Price of the commodity, MC = Marginal Cost (private), and MB = Marginal Benefit (private). For pollution level 'a', _____, therefore the country should _____ pollution. A)SMB SMC; increase B)SMC = SMC; decrease C)SMB

Question

The figure given below depicts the relationship between the social benefits and social costs associated with different levels of pollution. The two curves are Social Marginal Cost (SMC) and Social Marginal Benefit (SMB). The other terminologies are P = Price of the commodity, MC = Marginal Cost (private), and MB = Marginal Benefit (private). For pollution level 'a', _____, therefore the country should _____ pollution. 
A)SMB > SMC; increase 
B)SMC = SMC; decrease 
C)SMB < SMC; increase 
D)SMC < MC = P = MB; decrease

Quizplus · Accepted Answer

At pollution level 'a', SMB is greater than SMC. This means that the social benefits of producing the commodity with that level of pollution are greater than the social costs. Therefore, the country should increase pollution to the level 'a' to maximize social welfare.

The Figure Given Below Depicts the Relationship Between the Social