Which of the following is a disadvantage associated with the use of coal as an alternative source of energy, considering externalities related to social costs?

• A. It is a renewable resource and does not contribute to environmental degradation.
• B. It is widely considered the cleanest source of energy with no social costs.
• C. It produces significant air pollution and greenhouse gas emissions, leading to negative externalities.
• D. It has minimal impact on water quality and aquatic ecosystems.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when the production or consumption of a good affects third parties who are not directly involved in the transaction, leading to social costs or benefits that are not reflected in market prices.
2. Step 2: Identify the social costs associated with coal as an energy source. Social costs include negative externalities such as air pollution, greenhouse gas emissions, and environmental degradation that affect public health and ecosystems.
3. Step 3: Analyze each option in the problem statement to determine which correctly describes a disadvantage of coal related to social costs. For example, coal is not a renewable resource and does contribute to environmental degradation, so options stating otherwise can be eliminated.
4. Step 4: Recognize that the option stating coal produces significant air pollution and greenhouse gas emissions aligns with the concept of negative externalities and social costs, making it the correct disadvantage.
5. Step 5: Conclude that the disadvantage of coal as an alternative energy source is its contribution to negative externalities, which impose costs on society beyond the private costs borne by producers and consumers.