Question

Each of the following statements is either true, or false. For each statement below state which each is true or false, and briefly but precisely explain your answer.

1. When the rate of output is at the socially efficient level, the total social benefit is as large as possible.

2. A polluter will buy a permit if the price is less than its marginal abatement cost (MAC) of controlling emissions.

3. The Coase theorem states that social efficiency can be obtained through bargaining.

Answer 1

1) :- it is false that When the rate of output is at the socially efficient level, the total social benefit is as large as possible.

•Because at the socially efficient level of output net social value is equal to the total willingness to pay minus total cost is as large as possible.

2 ) :--it is true, that A polluter will buy a permit if the price is less than its marginal abatement cost (MAC) of controlling emissions.

•Abatement cost are those cost which is occure to reducing environmental negative such as pollution.

•Marginal add with it means in economy term measure the cost of additional unit

•So MAC is used to measure the cost of reducing one more unit of pollution.

3) :-IT is false that The Coase theorem states that social efficiency can be obtained through bargaining.

•Because the net gain to society will differ it depend upon who holds the property right to pollute.

•And coase theorm suggest that in presence of externality bargaining can achieve the socially equilibrium efficiency regardless of intial allocation of property rights