When polluting sources with different Marginal Abatement Costs (MACs) are faced with a Marginal Effluent Fee (MEF), each abates at a different level, which means that the effluent fee does not achieve a cost-effective solution.

Question

Quizplus · Accepted Answer

The statement is incorrect. The effluent fee actually does achieve a cost-effective solution, as sources with higher MACs will choose to abate less and pay the fee, while sources with lower MACs will choose to abate more and pay less in fees. This leads to a market equilibrium where the overall cost of pollution reduction is minimized.

When Polluting Sources with Different Marginal Abatement Costs (MACs) Are