Use the Following to Answer Question

question 55

Multiple Choice

Use the following to answer question:
Figure: The Socially Optimal Quantity of Pollution
-(Figure: The Socially Optimal Quantity of Pollution) Use Figure: The Socially Optimal Quantity of Pollution.In the figure,firms are the only beneficiaries of pollution,and costs are borne solely by others in the society.Without government intervention:

• A)firms will continue to pollute until the marginal benefit to them is zero.
• B)firms will continue to pollute until the marginal benefit to them is $200.
• C)the optimal quantity of pollution will occur.
• D)The outcome cannot be determined without more information.

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Definitions:

Income Effect

The change in consumption resulting from a change in real income.

Theory of Consumer Choice

An economic framework describing how consumers make decisions to allocate their resources optimally among various goods and services.

Indifference Curve

A graph representing combinations of goods among which a consumer is indifferent, showing trade-offs between two goods.

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased with a given budget and prices.