If a Production Process Creates Pollution,a Competitive Market Produces Excessive

question 1

Multiple Choice

If a production process creates pollution,a competitive market produces excessive pollution because

• A) private marginal cost of pollution exceeds its social marginal cost.
• B) social marginal cost of pollution exceeds its private marginal cost.
• C) the marginal benefit of pollution to the firm is zero.
• D) zero pollution is optimal.

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Definitions:

Private Bargaining

The process of negotiating terms directly between parties without external intervention.

Externality

An outcome from economic behavior that impacts individuals not directly involved, which may be beneficial or harmful.

Initial Assignment

The initial distribution or allocation of tasks, responsibilities, or resources at the start of a project or process.

Liability Rule

A legal principle that allows for compensation when someone's action causes harm or loss to another, even without an agreement between the parties.