Explain the economics of why the refund might be set higher than the deposit.
State officials are establishing a deposit/refund system for batteries. Marginal costs and benefits have been estimated to be:
MPC = 5 + 0.5Q MPB = MSB = 20 – 0.5Q
MSC = 5 + 0.7Q,
whereQ is in millions, and the marginal cost and benefit values are in dollars per battery.
The deposit is set equal to the MEC to assure that the consumer pays in advance for damage associated with potential pollution. However, the refund can be set higher than the deposit to increase the incentive for consumers to return the used battery.
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