Question

Due to the concept that economist call asymmetric information, polluting firms can mislead regulators regarding the costs of abatement. It is often in the interest of polluting firms to _________ the costs abatement so that the regulated target for emissions is _______ than the socially efficient level.

Group of answer choices

A. understate; lower

B. understate; higher

C. overstate; lower

D. overstate; higher

Answer 1

Answer

Option D

D. overstate; higher

the higher abatement costs reduce the higher level of pollution as the external costs increase and the external cost curves shift to the left more than required so that the higher level of pollution reduces than the socially optimum level.