Final answer:
The socially optimal quantity of particulate matter, such as 160 million tons per day, is where the marginal benefits of pollution reduction equal the marginal costs involved.
Step-by-step explanation:
If the government has determined that the socially optimal quantity of particulate matter is 160 million tons per day, this quantity represents the level at which the marginal benefits of reducing pollution are equal to the marginal costs of doing so. For instance, if a small firm emits particulate matter, which can cause respiratory illnesses and impose costs on others, the firm faces a choice between polluting and paying a pollution tax, or reducing emissions and paying for abatement. The optimal level depicted, such as the four million gallons mentioned, is where the cost of abating one more unit of pollution (like a ton of particulate matter) is exactly equal to the tax or other costs saved by not emitting that extra unit.