Figure 18.2.2
-If the MSB/MCA graph indicates that an emissions fee of $10 per unit would lead to the optimum level of emissions, but the government set a fee of $5 per unit, emissions would:
A) not be reduced at all.
B) not occur at all.
C) be above the optimum level, but curtailed somewhat from what they would have been with no fee at all.
D) be above the optimum level by 50%.
E) be below the optimum level by 50%.

Question

Figure 18.2.2
-If the MSB/MCA graph indicates that an emissions fee of $10 per unit would lead to the optimum level of emissions, but the government set a fee of $5 per unit, emissions would:
A) not be reduced at all. 
B) not occur at all. 
C) be above the optimum level, but curtailed somewhat from what they would have been with no fee at all. 
D) be above the optimum level by 50%. 
E) be below the optimum level by 50%.

Quizplus · Accepted Answer

A fee of $5 per unit is less than the optimum level of $10 per unit, meaning it is not high enough to fully incentivize firms to reduce their emissions to the optimal level. However, it is still a fee that imposes a cost on emissions, so firms will reduce their emissions somewhat from what they would have been with no fee at all. Therefore, emissions will be above the optimum level, but curtailed somewhat from what they would have been with no fee at all. Choice C is the closest to this answer.

Figure 18.2.2 -If the MSB/MCA Graph Indicates That an Emissions Fee of Fee