Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

A) The price will be too high, and the output will be too large.
B) The price will be too low, and the output will be too large.
C) The price will be too low, and the output will be too small.
D) The price will be too high, and the output will be too small.

Question

Carlos Becerra · Accepted Answer

Final Answer : B, Explanation :  When paper pulp mills emit pollutants without charge, they do not account for the external costs of pollution. This leads to a lower price and higher output than what would be ideal for economic efficiency, where all costs, including externalities, are considered.

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