What is the economic outcome when a polluting producer's supply curve does not include the external costs borne by the community?
Explanation
Negative externalities lead to market failure because the producer's supply curve reflects only private costs, not the full social costs. This results in a market price that is too low and an output level that is too high, causing an overallocation of resources to the polluting activity.
Other questions
What are the two characteristics that distinguish public goods from private goods?
What is the term for the problem that arises when a producer provides a public good, but everyone, including nonpayers, can obtain the benefit?
How is the collective demand curve for a public good derived from individual willingness-to-pay curves?
Based on the cost-benefit analysis for a national highway project detailed in Table 16.2, which plan provides the maximum net benefit?
Under what conditions does the Coase theorem suggest that government intervention is not needed to resolve externality problems?
What is the primary effect of government-imposed direct controls, such as uniform emission standards, on a polluting firm's costs and supply curve?
In a market with a positive externality, what is the effect of a government subsidy provided to buyers?
What is the concept that describes the overuse and degradation of resources like rivers, lakes, and the air because rights to them are held in common by society?
In a cap-and-trade program for pollution rights, what determines the equilibrium market price for a pollution right?
What is the optimal reduction of a negative externality, like pollution, according to the MB-MC framework?
What term describes a market failure caused by unequal knowledge possessed by the parties to a market transaction?
What is the moral hazard problem in the context of insurance?
What is the adverse selection problem as it applies to insurance markets?
In a cap-and-trade system where the market price for a pollution right is $100 per ton, Acme Pulp Mill can reduce its pollution by 1 ton for $20, and Zemo Chemicals' cost for the same reduction is $800. What is the most efficient outcome?
According to the table 'Demand for a Public Good, Two Individuals', what is the collective willingness to pay for the third unit of the public good?
In the graphical analysis of the optimal amount of a public good, what does the intersection of the collective demand curve (Dc) and the supply curve (S) determine?
What is the primary reason that a market with a positive externality, such as vaccinations, results in an underallocation of resources?
According to the example of the 'lemons' problem in the used-car market, what is the primary consequence of asymmetric information where sellers know more about car quality than buyers?
What is the effect of a government subsidy provided to producers in a market with positive externalities?
In the context of information failures, what is a key reason for government licensing of professions like surgeons?
What does the text identify as the optimal amount of a public good?
What type of government intervention does the text suggest for correcting the underallocation of resources when positive externalities are extremely large?
Which of the following is an example of the moral hazard problem?
In a market for pollution rights with a fixed supply of 500 tons, what happens to the price of a pollution right if demand increases from D2008 to D2018, as shown in the textbook's figure?