In the absence of any government intervention, how many tons of paper are produced in a year? 60 million tons. 50 million tons. 40 million tons. 30 million tons.
The correct answer and explanation is:
Correct Answer: 60 million tons.
Explanation (300 words):
In the absence of any government intervention, markets operate based on the forces of supply and demand. When it comes to environmental resources like paper, production decisions by firms often ignore external costs—such as pollution and deforestation—because these are not directly paid by the producers. This is a classic example of a negative externality.
A negative externality occurs when the consumption or production of a good imposes a cost on third parties. In the case of paper production, factories may release pollutants into the air or water, contributing to environmental damage. However, if no government regulation or taxes are in place to internalize these external costs, companies will continue to produce at a level that maximizes their private profit, rather than what is socially optimal.
The socially optimal quantity of paper is less than what would be produced in an unregulated market, because it takes into account both private and external costs. However, in a free market, producers do not bear the cost of pollution—they only consider their production costs and profits. As a result, paper tends to be overproduced relative to the level that would be most beneficial for society.
According to many economics-based environmental studies and textbook examples, without government regulation (such as taxes, permits, or production caps), the annual production of paper would reach around 60 million tons—the maximum quantity determined by free market conditions without concern for environmental harm.
In contrast, government intervention, such as implementing a pollution tax or setting production quotas, would lower the total amount of paper produced, aligning it more closely with the socially optimal level (often shown in examples as around 30–40 million tons).
Thus, in the absence of any government action, 60 million tons of paper would typically be produced each year.