Quick Weitzman practice:

15. True or False: When the marginal social benefit curve is relatively steep but unknown and the marginal cost curve is relatively flat but known, a quantity instrument can lead to the efficient outcome (i.e., there will be no deadweight loss) because the outcome will be on the known cost curve. (1 point)

16. Consider the graph below (labeled Graph B), which depicts an abatement market like the ones we discussed in class around the Weitzman model. (I.e., assume there is no market for abatement absent policy, so the tax or permit price is the only driver of abatement, and the market will end up on the true cost curve.) Two possible marginal cost curves are shown, along with the expected marginal cost curve. On the graph, along the x-axis, denote the quantities that would occur if (i) there was a price policy and the true marginal cost was high, (ii) there was a price policy and the true marginal cost was low, (iii) there was a quantity policy and the true marginal cost was high, (iv) there was a quantity policy and the true marginal cost was low. Next, shade and label the area representing deadweight loss for (v) the case where there is a price policy and the true marginal cost was high and (vi) the case where there is a quantity policy and the true marginal cost was high. Upload an image. (* 4 points)