Changes

When companies are allowed to pollute without paying for it, their marginal cost (MC) is artificially lower than it should be.  These companies are avoiding the cost of their own pollution.  A lower MC means they will produce more goods than if their MC were higher.  The term “marginal social cost” is used by economists to represent the true cost of their activities, including the cost of their pollution.  Because companies produce ''more'' than they would if they had to pay for the cost of their pollution, some consider this to be '''''inefficient'''''.  On the CLEP exam, it takes regulation to make it efficient by preventing the companies from putting out the pollution.

When companies are allowed to pollute without paying for it, their marginal cost (MC) is artificially lower than it should be.  These companies are avoiding the cost of their own pollution.  A lower MC means they will produce more goods than if their MC were higher.  The term “marginal social cost” is used by economists to represent the true cost of their activities, including the cost of their pollution.  Because companies produce ''more'' than they would if they had to pay for the cost of their pollution, some consider this to be '''''inefficient'''''.  On the CLEP exam, it takes regulation to make it efficient by preventing the companies from putting out the pollution.

You might wonder what a conservative, free market approach to reducing negative externalities (like pollution) would be.  One approach would be to require full disclosure to the public by companies of their negative externalities, so that the public could stop buying the product if the public was concerned about the negative externalities.  That would enable the free market to solve the problem in an efficient way.

You might wonder what a conservative, free market approach to reducing negative externalities (like pollution) would be.  One approach would be to require full disclosure to the public by companies of their negative externalities, so that the public could stop buying the companies' products if the public were concerned about the negative externalities.  This would enable the free market to solve this problem in an efficient way.

'''''Outside the topic of government regulation on the CLEP exam, there are no biased answers.  Do not choose one answer instead of another for reasons of bias except in one or two rare cases.'''''

'''''Outside the topic of government regulation on the CLEP exam, there are no biased answers.  Do not choose one answer instead of another for reasons of bias except in one or two rare cases.'''''