tate whether each of the statements is TRUE or FALSE, and with one or more sentences and explain your reasoning as clearly as you can. 1) To achieve a cost-effective outcome, abatement responsibilities across polluting sources must be allocated such that the level of Marginal Abatement Cost is equal across polluters.

tate whether each of the statements is TRUE or FALSE, and with one or more sentences and explain your reasoning as clearly as you can. 1) To achieve a cost-effective outcome, abatement responsibilities across polluting sources must be allocated such that the level of Marginal Abatement Cost is equal across polluters.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 1.1P

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Explain why cost-effective pollution abatement is not necessarily equitable in 2-3 sentences.
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Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms' costs, the government just implements a uniform standard aui = A* / 2. Is this allocation efficient? If not, what is the deadweight loss?
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