Answer the following statement(s) true (T) or false (F)

Question

1. According to the textbook application, the United States pays a higher tax rate on gasoline than any nation in the European Union (EU).
2. If firm 1 and firm 2 each face an marginal abatement cost of MAC1 = 5A1 and MAC2 = 3A2, respectively, and if the combined abatement level must be 16 units, then firm 1 must abate 6 units and firm 2 must abate 10 units in order to achieve the cost-effective solution.
3. Suppose that for some abatement equipment market, the MSB = 525 – 1.2Q and MPB = 325 – 0.8Q, then the Pigouvian subsidy for that market must equal 200 – 0.4Q at QE to achieve an efficient outcome.
4. Suppose that for some abatement equipment market, the MSB = 502 – 1.2Q, and MPB = 302 – 0.8Q, then the Pigouvian subsidy must equal 804 – 2Q at the efficient output level to achieve the efficient output level.
5. Compared to an abatement equipment subsidy, a per-unit subsidy on abatement might be less disruptive to the market because it is defined without any influence as to how abatement is achieved.

Answer 1

1. False
2. True
3. True
4. False
5. True