Long Response Explained:
a. The marginal social cost of pollution is the additional cost imposed on society by an additional unit of pollution.
b. The marginal social benefit of pollution is the additional benefit to society from an additional unit of pollution. Even when a firm could provide the same quantity of output without polluting as much, there is a benefit from polluting more because the firm can devote less money and resources to pollution avoidance.
c. The socially optimal level of pollution is that level at which the marginal social benefit of pollution equals the marginal social cost.
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b. The marginal social benefit of pollution is the additional benefit to society from an additional unit of pollution. Even when a firm could provide the same quantity of output without polluting as much, there is a benefit from polluting more because the firm can devote less money and resources to pollution avoidance.
c. The socially optimal level of pollution is that level at which the marginal social benefit of pollution equals the marginal social cost.
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Multiple Choice Explained:
1.) Choice: A (Loud conversations in a library)
Explanation: Loud conversations in a quiet setting such as a library are heard much more easily and because of this, are more disruptive. The others attending the library (In this scenario, the third party) weren't given the option to have others removed who are talking, therefore this undesirable externality is produced.
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2.) Choice: D (Either private or government actions)
Explained: As stated before through The Coase theorem, inefficiencies can be dealt with privately, so long as rights and laws are clearly defined. One party simply has to pay or reward the other to get what they want and it is fair on both sides. Obviously, the government can intervene is necessary, in cases like pollution being generated from plants. It wouldn't be fair for the community to have to pay for cleaning it, so the law can force the firm to change the way they produce their product.
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3.) Choice: B (private bargaining)
Explained: Similarly to the explanation for the last question, The Coase theorem specifically outlines a way to go about dealing with inefficiencies without dealing with the government.
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Explanation: Loud conversations in a quiet setting such as a library are heard much more easily and because of this, are more disruptive. The others attending the library (In this scenario, the third party) weren't given the option to have others removed who are talking, therefore this undesirable externality is produced.
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2.) Choice: D (Either private or government actions)
Explained: As stated before through The Coase theorem, inefficiencies can be dealt with privately, so long as rights and laws are clearly defined. One party simply has to pay or reward the other to get what they want and it is fair on both sides. Obviously, the government can intervene is necessary, in cases like pollution being generated from plants. It wouldn't be fair for the community to have to pay for cleaning it, so the law can force the firm to change the way they produce their product.
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3.) Choice: B (private bargaining)
Explained: Similarly to the explanation for the last question, The Coase theorem specifically outlines a way to go about dealing with inefficiencies without dealing with the government.
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