Polluting sources have an incentive to abate up to the point where their Marginal Abatement Cost (MAC) equals the Marginal Effluent Fee (MEF), and to pay the fee beyond that point.

Question

Quizplus · Accepted Answer

The statement is true according to the concept of the "polluter pays principle" in environmental economics. The idea is that by imposing a fee on the amount of pollution emitted, the cost of pollution becomes internalized into the decision-making of the polluter. As a result, polluters have an incentive to reduce their emissions up to the point where the cost of reducing the emissions equals the fee imposed. Beyond that point, it is cheaper for them to pay the fee rather than to reduce their emissions further. This creates an incentive for polluters to reduce their emissions and for society to benefit from a cleaner environment.

Polluting Sources Have an Incentive to Abate Up to the Point