Question

Suppose that Charles, who is a policymaker in the state of Cargomix, believes that air and water pollution should be reduced to zero.

What unintended effects might such policies have?

a If firms are required to reduce pollution levels to zero, the prices of goods and services produced will fall significantly.

b Zero pollution in an economy will lead to scarcity of resources within the economy.

c If firms are required to reduce pollution levels to zero, the employment rates in the economy will rise.

d If firms are required to reduce their pollution levels to zero, then the prices of the goods and services they produce may rise.

Answer 1

Suppose that Charles, who is a policymaker in the state of Cargomix, believes that air and water pollution should be reduced to zero. This can be done by inventing new technology or new ways of production or consumption.

There is definitely a cost associated with reducing pollution to 0 which is called as marginal abatement cost. This will results into an increase in cost of production which cause price of goods and service to rise.

Option d is the correct answer.