-Producing Leather Creates External Costs in the Form of Water

question 30

Multiple Choice

-Producing leather creates external costs in the form of water pollution. The figure above illustrates the market for leather. If the government sets a pollution limit that achieves efficiency, how many tonnes of leather are produced?

• A) 300 tonnes
• B) 0 tonnes
• C) 200 tonnes
• D) More than 300 tonnes
• E) More than 0 tonnes and less than 200 tonnes

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Definitions:

Competitive Market

A market structure marked by a high level of competition among businesses, where no single entity has the power to influence market prices significantly.

Government-operated Firms

Businesses owned and managed by a government in order to provide goods or services to the public.

Economic Efficiency

An arrangement whereby resources are utilized in the most efficient way to increase the output of goods and services at the minimum possible cost.

Monopoly Power

The ability of a single entity or company to control or dominate a particular market, often leading to higher prices and reduced competition.