If the marginal cost (MC) of polluting decreases, which of the following is most likely to occur in the market for the polluting good?

• A. Government intervention will become unnecessary.
• B. Consumers will reduce their demand for the polluting good.
• C. Producers will increase output, leading to higher levels of pollution.
• D. The social cost of pollution will automatically decrease.

Answer: (C)

Verified step by step guidance

1. Understand the concept of marginal cost (MC) of polluting: it represents the additional cost to producers for each extra unit of pollution they generate.
2. Recognize that if the MC of polluting decreases, it becomes cheaper for producers to pollute more when producing the good.
3. Recall that producers aim to maximize profit, so a lower MC of polluting reduces their overall production costs, incentivizing them to increase output.
4. Consider the market outcome: increased production of the polluting good leads to higher levels of pollution because producers face less cost for polluting.
5. Conclude that government intervention may still be necessary because the social cost of pollution (externality) is not automatically reduced by a lower MC of polluting; instead, pollution likely increases.