Suppose the private marginal cost of pumping water from an aquifer remains constant as the quantity of water pumped increases, and the marginal social cost is upward sloping. If the demand for water shifts to the right as population increases, then the amount of water pumped based only on private costs and the social cost of the common property resource .

A) decreases; decreases.
B) decreases; increases
C) increases; decreases
D) increases; increases

Question

Suppose the private marginal cost of pumping water from an aquifer remains constant as the quantity of water pumped increases, and the marginal social cost is upward sloping. If the demand for water shifts to the right as population increases, then the amount of water pumped based only on private costs ________ and the social cost of the common property resource ________.

A) decreases; decreases.
B) decreases; increases
C) increases; decreases
D) increases; increases

Caitlin Conery · Accepted Answer

Final Answer : D, Explanation :  When demand shifts right due to population increase, more water is pumped based on private costs, ignoring the rising social costs. This leads to an increase in both the amount of water pumped and the social cost associated with overuse of the common resource.

Definitions

Learning Objectives

Learning Objectives

Related questions