A commercial aquaculture farm near an estuary uses open-net pens to raise salmon, releasing large quantities of organic waste and chemical treatments into the surrounding marine ecosystem. This damages the local wild fish populations and disrupts artisanal fisheries nearby.
Which one of the following best describes the resulting market failure in the aquaculture market?
The social optimum output is greater than the free market output because the private cost is greater than the social cost.
The social optimum output is greater than the free market output because the private cost is less than the social cost.
The social optimum output is less than the free market output because the private cost is less than the social cost.
The social optimum output is less than the free market output because the private cost is greater than the social cost.
