The production of paper often creates a waste product that pollutes waterways. Assume the producer of paper does not directly pay to dispose of the waste in the water.

In this case, the price of paper will be the socially efficient price and the amount of paper produced will be the socially efficient amount.

In the case, the price of paper will be below the socially efficient price and the amount of paper produced will be above the socially efficient amount.

Explanation:

The production of paper often creates a waste product that pollutes waterways. Assume the producer of paper does not directly pay to dispose of the waste in the water.In the case, the price of paper will be below the socially efficient price and the amount of paper produced will be above the socially efficient amount.It is the most producing output level because the social marginal benefit of producing and consuming another unit equals to the marginal social cost.The entire market setup demands a  curve equal to the marginal cost curve. Suppose that both the demand curve and the marginal cost curve includes all the benefits and all the costs, respectively.

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