Question

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the:________. a. price of coal will be higher than the socially optimal price b. quantity of coal produced will be less than the socially optimal quantity. c. quantity of coal produced will be greater than the socially optimal quantity d. supply curve will lie to the left of the regulated supply curve.

Answer 1

Answer: c. quantity of coal produced will be greater than the socially optimal quantity

Explanation:

The Socially Optimal quantity is the level of production that takes into account the negative externality being produced by coal and weighs it against the marginal benefit it brings.

If coal produces the negative externality of polluting the environment here then the socially optimal quantity of coal will be less than the market equilibrium because the marker equilibrium would not have taken into account the negative externality and will lead to more coal being produced than should be.