Firms A and 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 from polluting.
D) be preferred to an emissions tax since it takes into account differences in marginal benefits.

Question

Quizplus · Accepted Answer

An emissions standard would not be efficient since it does not take into account differences in the marginal benefits from polluting between the two firms. This means that one firm might be more heavily impacted by the standard than the other, resulting in an unequal reduction in pollution. A more efficient solution would be to implement an emissions tax, which would allow both firms to choose their optimal level of pollution based on their individual marginal benefits and costs.

Firms a and B Both Produce a Good Whose Manufacture