Question

If the owners of SUVs are not forced to compensate the people affected by their pollution, the market result will be:

A) a higher level of demand.
B) a price that is too high and too few SUVs being driven.
C) a price that is too low and too many SUVs being driven.
D) a lower equilibrium price.

Answer 1

The correct answer is B) a price that is too high and too few SUVs being driven.

Step-by-step explanation:

The correct answer is B) a price that is too high and too few SUVs being driven. If the owners of SUVs are not forced to compensate the people affected by their pollution, there would be no external cost imposed on them for their actions. This would result in a market outcome where the price of SUVs remains high and there is limited demand for them. Without compensation, the negative externalities associated with SUV pollution are not internalized, leading to an inefficient allocation of resources.