Question

In the case of a coal-burning plant that generates pollutants:

a. the people who buy the output of the plant have to pay the costs of pollution abatement.
b. consumers are faced with prices that reflect the full cost of production.
c. government agencies may seek to limit the emission of pollution through regulation.
d. the firm would consider the cost of this pollution in its production decisions even in the absence of regulation.

Answer 1

Government agencies limit pollution through command-and-control regulation, requiring firms to install pollution-control equipment and take the social costs of pollution into account. This intervention can raise production costs and prices but is essential to address the external costs and negative externalities associated with pollution.

The correct option is c. government agencies may seek to limit the emission of pollution through regulation.

Step-by-step explanation:

In the context of a coal-burning plant that generates pollutants, there are several ways in which the costs of pollution are addressed. One common method is through command-and-control regulation, which mandates that companies comply with specific limits on pollution emissions, and may require the installation of pollution-control technologies. The costs associated with these regulations, known as abatement costs, were significant in the United States, amounting to nearly $27 billion in 2005. If firms are required to pay the social costs of pollution, they likely produce less and charge higher prices to cover the additional costs.

The correct option is c. government agencies may seek to limit the emission of pollution through regulation.