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Some economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be: a
Some economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be:
a. Each would create less pollution
b. Each would lower production to decrease pollution levels
c. Their supply curves will represent all of those social costs
d. The price of goods will rise and both a. and b.
Expert Solution
Some economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be (d) The price of goods will rise and both a. and b.
When there is pollution, there is an added external cost that is placed on individuals who are unrelated to the parties in the transaction. Because of this, the firms do not factor these costs into their decisions. With the essential tax that is being proposed in this question, there would be an added cost to the firm, which would cause their marginal cost curve to shift upward. This would cause the price to rise, output to fall, and corresponding levels of pollution to also fall because of the decreased output.
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