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

1. In a deposit-refund system, the deposit makes the polluter internalize the externality by absorbing the cost of any damage it might generate in advance.
2. To effectively internalize the externality, the deposit component of a deposit-refund system must raise the MPC of illegal waste disposal by the MECmeasured at the competitive output level.
3. Suppose that Firm 1 and Firm 2 face marginal abatement costs of MAC1 = 2.5A1 and MAC2 = 1.5A2, respectively, and that tradeable permits for pollution are issued such that a total of 20 units must be abated. If firm 1 abates 7.5 units, and firm 2 abates 12.5 units, then both firms have an incentive to trade.
4. If Firm X is abating 9 units with an MACX = 0.6AX, and Firm Y is abating 11 units with an MACY = 0.9AY, then Firm Y should do less of the abating and Firm X should do more in order to lower the overall costs of abatement.


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

Economics

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