Question

If disposal problems mean that the marginal social cost of producing plastic is greater than the marginal private costs, than

the price of plastics are too high.

the price of plastics are too low

the output of plastics are too low

too few workers are producing plastics

which one is true

Answer 1

Answer. (b) the price of plastics are too low.

Explanation: First of all, marginal costs means the additional cost incurred when one more unit of a product is produced. So, marginal social cost is the additional cost to society when one more unit of plastic is produced. And marginal private cost is only the additional cost that the firm bears when producing one more unit of plastic. Now in the question it is mentioned that marginal social cost is greater than the marginal private cost for plastics. It means that social costs like pollution, loss of marine life, etc. are much more in number and also present a much higher cost (both monetary and non-monetary) when compared to the cost to the firm, like raw materials, labor, etc. This creates a disposal problem, that is, the society finds it difficult to dispose off such a large quantity of plastics being used. Then obviously, as we are seeing in our daily lives as well, the market price of plastics is much lower. This is because the market price takes into account only the marginal private cost. Thus the marginal social costs are not taken into account and thus result in a net societal damage.