Question

The remaining statements are false. If pollution results from an activity, there is an external cost generated. Since social cost is the sum of private and external costs, social cost must be greater than private cost in this case. Wages do not impose an external cost, as there is no cost on a 3rd party.

a) True
b) False

Answer 1

The statement is true as pollution results in external costs and social cost is greater than private cost in this case, while wages do not impose an external cost.

Step-by-step explanation:

In the case of pollution resulting from an activity, there is an external cost generated. Social cost is the sum of private and external costs, so social cost must be greater than private cost in this case.

Wages, on the other hand, do not impose an external cost because there is no cost on a third party. Wages are a private cost incurred by firms, and they are not considered an external cost.

In summary, the statement is true as pollution results in external costs and social cost is greater than private cost in this case, while wages do not impose an external cost.