Firm A and firm B both produce a good that causes pollution, but the firms differ in their marginal benefit from pollution.In this case, an emissions standard would:
A)reduce pollution in the most effective manner.
B)lead to an unequal reduction in pollution for both firms.
C)not be efficient, since it does not take into account differences in marginal benefits.
D)be preferred to an emissions tax, since it takes into account differences in marginal benefits.

Question

Quizplus · Accepted Answer

An emissions standard does not take into account differences in marginal benefits, which means it may not be efficient. Firm A and B have different marginal benefits from pollution, which means an emissions standard may not result in the most effective reduction of pollution. A better policy option would be an emissions tax, which can be designed to account for differences in marginal benefits and lead to a more efficient reduction of pollution.

Firm a and Firm B Both Produce a Good That