Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.In this market, where sulfur emission is a result of production, an efficient solution is one in which:
A)MSB

Question

Figure: Pollution and Efficiency   (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.In this market, where sulfur emission is a result of production, an efficient solution is one in which:
A)MSB < MSC. 
B)MSC < MSB. 
C)total cost = total benefit. 
D)MSC = MSB.

Quizplus · Accepted Answer

An efficient solution is achieved when the marginal social cost (MSC) of production is equal to the marginal social benefit (MSB) of consumption. This is the point where the market reaches allocative efficiency and resources are being used to produce the optimal quantity of the good. Therefore, the correct choice is D, since MSC = MSB at the efficient solution. A is incorrect because MSB should be greater than MSC in order for the market to be willing to consume the good, and B is incorrect because MSC must be kept as low as possible to avoid negative externalities, which can be achieved by reducing the level of production. C is incorrect because total cost and total benefit are irrelevant in determining the efficient solution.