Based on the criteria of allocative efficiency, an abatement standard is set optimally if A) that standard is benefit-based B) it is set where the MSB of abatement is equal to Σ(MAC_mkt + MCE). C) the least amount of resources is used to achieve the standard D) it is set at the point where MSB of abatement equals zero

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the marginal social benefit (MSB) of abatement equals the marginal abatement cost (MAC). The abatement standard should be set where Σ(MAC_mkt + MCE) equals the MSB of abatement. This ensures that the abatement achieved provides the greatest net benefit to society, which is the goal of allocative efficiency. Option A is not specific enough to ensure allocative efficiency, option C does not consider the benefit of the abatement achieved, and option D does not correspond to any economic concept.

Based on the Criteria of Allocative Efficiency, an Abatement Standard