Suppose a paper mill emits noxious odours that represent a negative externality for people living near the plant. If the plant managers ignore these external effects on their neighbours, what is the efficiency character of the resulting market outcome? A. The plant generates too much paper because the odours are nonexclusive. B. The plant generates too much paper because the managers ignore the external costs of the air pollution on the neighbours. C. The market outcome is efficient. D. The plant generates too much paper due to incomplete information.
Question
Suppose a paper mill emits noxious odours that represent a negative externality for people living near the plant. If the plant managers ignore these external effects on their neighbours, what is the efficiency character of the resulting market outcome? A. The plant generates too much paper because the odours are nonexclusive. B. The plant generates too much paper because the managers ignore the external costs of the air pollution on the neighbours. C. The market outcome is efficient. D. The plant generates too much paper due to incomplete information.
Solution
The correct answer is B. The plant generates too much paper because the managers ignore the external costs of the air pollution on the neighbours. This is a classic example of a negative externality, where the cost of a firm's actions is not fully borne by the firm itself, but also affects third parties. In this case, the third parties are the neighbours who have to endure the noxious odours. Because the plant does not take these external costs into account when deciding how much paper to produce, it ends up producing more paper than would be socially optimal. This leads to a market outcome that is inefficient from a societal perspective.
Similar Questions
If the social benefit of consuming a good or a service exceeds the private benefit,Group of answer choicesthe market achieves economic efficiency.a negative externality exists.a positive externality exists.the sum of consumer surplus and producer surplus is maximised.
Suppose the production of a good in a competitive market has a negative externality. Which of the following is true? a) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is less than the allocatively efficient output. b) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is at the allocatively efficient output. c) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is more than the allocatively efficient output. d) The social marginal cost curve lies to the right of the market supply curve, and the market equilibrium quantity is less than the allocatively efficient output. e) The social marginal cost curve lies to the right of the market supply curve, and the market equilibrium quantity is more than the allocatively efficient output.
The production of paper often creates a waste product that pollutes waterways. Assume the producer of paper does not directly pay to dispose of the waste in the water. In this case, the price of paper will be the socially efficient price and the amount of paper produced will be the socially efficient amount.
Consider a competitive market in which the MPB = 178–4q and the MSC =3q. In this market, however, there is a positive consumption externality of $80 per unit consumed. What is the efficient level of output in this market?[Round your answer to two decimal places when needed]
what is market efficiency
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.