-Refer to the figure above.MAC₁ represents a mis-estimation of abatement costs.True abatement costs are MAC₂, however the regulatory agency believes that the costs are represented at MAC₁ and sets policy accordingly.Due to this error, emissions are ________ than the socially efficient level and damages are ___________ than the socially efficient level.

Question

-Refer to the figure above.MAC<sub>1</sub> represents a mis-estimation of abatement costs.True abatement costs are MAC<sub>2</sub>, however the regulatory agency believes that the costs are represented at MAC<sub>1</sub> and sets policy accordingly.Due to this error, emissions are ________ than the socially efficient level and damages are ___________ than the socially efficient level. A) lower; lower B) lower; higher C) higher; lower D) higher; higher

Quizplus · Accepted Answer

If the regulatory agency underestimates the true abatement costs (MAC₁ instead of MAC₂), they will set a policy that results in higher emissions than the socially efficient level, leading to higher damages.

-Refer to the Figure Above