📚 Learning Guide
Externality Graphs in Economics
easy

If the production of copper leads to increased pollution, which of the following best explains the underlying cause of the negative externality depicted in the externality graph?

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Choose the Best Answer

A

Producers do not bear the full costs of pollution, leading to overproduction.

B

Consumers are unaware of the benefits of copper, reducing demand.

C

Government regulations are too strict, limiting production efficiency.

D

Social costs are equal to private costs, ensuring optimal market performance.

Understanding the Answer

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Answer

The underlying cause of the negative externality in the production of copper is that the producers do not take into account the harmful effects their activities have on the environment and public health. When copper is mined and produced, it can lead to pollution that affects air and water quality, which can harm people and wildlife. This means that while the producers may benefit from selling copper, they are not paying for the damage caused by their pollution. For example, if a copper mine releases toxic waste into a river, the local community may suffer from contaminated drinking water, but the mine does not bear the cost of this harm. Therefore, the externality represents a situation where the true costs of production are not reflected in the price of copper, leading to overproduction and increased pollution.

Detailed Explanation

Producers often do not pay for the pollution they create. Other options are incorrect because This option suggests that people don't want copper; This option thinks strict rules hurt production.

Key Concepts

Externalities
Market Efficiency
Government Intervention
Topic

Externality Graphs in Economics

Difficulty

easy level question

Cognitive Level

understand

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