Question

Consider some type of industrial pollution that generates air pollution. This industry, if left unregulated, will produce

A) more than the efficient level because they will ignore the marginal external costs.
B) the efficient level of output.
C) less than the efficient level because they will ignore the marginal external costs.
D) less than the efficient level because they will ignore the marginal external benefits.
E) more than the efficient level because they will ignore the marginal external benefits.

Answer 1

An unregulated industry causing air pollution will produce more than the efficient level due to ignoring marginal external costs, leading to market failure. Government intervention is typically necessary to align production with societal welfare.

Step-by-step explanation:

When considering an industry that generates air pollution, if left unregulated, this industry will produce more than the efficient level of pollution because they will ignore the marginal external costs. These external costs, like health impacts and cleanup expenses, are not factored into the production decisions of the firms, which leads to an excess production of polluting goods.

This situation is an example of a market failure, where the private market fails to consider the full social costs of pollution, thus producing more than what would be socially optimum. Consequently, to address this issue and achieve a balance between production and environmental quality, government intervention is often required through policies such as taxes, regulations or tradable permits.