Farmers use fertilizer comma which runs off into nearby waterlands comma causing
ID: 1129614 • Letter: F
Question
Farmers use fertilizer comma which runs off into nearby waterlands comma causing excess algae growth and harming wildlife.Farmers use fertilizer, which runs off into nearby waterlands, causing excess algae growth and harming wildlife.
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If the additional social cost of this production is not taken into account in the market,
A. the market price and quantity will be too high.
B. the market price will be too low, and the quantity will be too high.
C. the market price will be too high, and the quantity will be too low.
D. the market price and quantity will be too low.
Explanation / Answer
Correct option is (B).
Use of fertilizer creates a negative externality which gives rise to externality cost. Unless this cost is recognized and internalized, the private market equilibrium output will be higher than, and price will be lower than, the socially efficient output and price respectively.
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