"Suppose the market for aluminum is perfectly competitive and unregulated. If aluminum factories emit pollution, the marginal social cost of aluminum is less than the market price". True or false? Explain
What will be an ideal response?
The statement is false. Pollution is an external cost, and marginal social cost equals marginal private cost plus marginal external cost. In an unregulated competitive market, the market price equals marginal private cost. As a result, the marginal social cost of aluminum is its market price, which equals its marginal cost, plus the marginal external cost of pollution. So the marginal social cost of aluminum is higher than the market price.
You might also like to view...
The dollar demand curve in the foreign exchange market is:
A) vertical. B) downward sloping. C) upward sloping. D) horizontal.
Refer to Scenario 12.3. What will be the price of this new drink in the long run if the industry is a Stackelberg duopoly?
A) $3 B) $9 C) $12 D) $13.50 E) none of the above