Which of the following is a result of government attempts to increase energy efficiency?

• A. Expansion of market failure due to overconsumption
• B. Reduction in negative externalities such as pollution
• C. Increase in the marginal social cost of energy production
• D. Decrease in the marginal private benefit of energy consumption

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a third party is affected by the production or consumption of a good or service, and these effects are not reflected in market prices. Negative externalities, such as pollution, impose costs on society that are not borne by the producer or consumer.
2. Step 2: Recognize that government attempts to increase energy efficiency typically aim to reduce negative externalities. For example, by promoting energy-saving technologies or regulations, the government tries to lower pollution and other harmful side effects associated with energy production and consumption.
3. Step 3: Analyze the options given: Expansion of market failure due to overconsumption would mean the problem worsens, which contradicts the goal of increasing efficiency. An increase in the marginal social cost of energy production would imply higher costs to society, which is not the intended effect of efficiency improvements.
4. Step 4: Consider the marginal private benefit of energy consumption, which is the benefit to the consumer alone. Government policies to increase efficiency usually do not decrease this benefit directly; instead, they aim to align private benefits with social benefits by reducing external costs.
5. Step 5: Conclude that the correct result of government attempts to increase energy efficiency is the reduction in negative externalities such as pollution, as this aligns with the goal of correcting market failures and improving social welfare.