Firm A and firm B both produce a good whose manufacture causes pollution, but the firms differ in their marginal benefit from pollution. In this case, an emissions standard would:
A) reduce pollution in the most effective manner.
B) lead to an unequal reduction in pollution for both firms.
C) not be efficient, since it does not take into account differences in marginal benefits.
D) be preferred to an emissions tax, since it takes into account differences in marginal benefits.

Question

Quizplus · Accepted Answer

An emissions standard imposes the same limit on pollution for all firms, regardless of their marginal benefits from pollution. This does not account for the differences in marginal benefits between firms, leading to inefficiency.

Firm a and Firm B Both Produce a Good Whose