Question

Suppose that Kevin, who is a policymaker in the state of Argomix, believes that air and water pollution should be reduced to zero. What secondary effects might such policies have?

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

Firms that face increased costs of pollution reduction may end up hiring fewer workers as they cannot afford to produce as much as they did before.

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

Zero pollution in an economy will lead to an abundance of resources for the entire economy.

Answer 1

The policymaker in the state of Argomix wants to reduce the air and water pollution level to the zero.

It is true that a society wants to reduce the pollution to the zero, however, there are cost associated with such endeavor.

The reduction of pollution to zero results in marginal cost exceeding the marginal benefit. This is because zero level of pollution always exceeds the optimum level of pollution.

This increases the cost of production for firms as containment of pollution to zero level imposes considerable cost on the firms.

This reduces the profit margin of firms and compel them to reduce production.

As production in the economy gets reduced, employment level tends to fall as well.

Thus,

The secondary effects of such policies is that firms that face increased costs of pollution reduction may end up hiring fewer workers as they cannot afford to produce as much as they did before.

Hence, the correct answer is the option (2).