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Tens of emissions 10 9 8 7 6 5 4 3 2 1 Benefits Costs (millions of dollars) (millions of dollars) Benefit/Cost Ratio 0 0

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Tens of emissions 10 9 8 7 6 5 4 3 2 1 Benefits Costs (millions of dollars) (millions of dollars) Benefit/Cost Ratio 0 0 NA 9 1 9.00 17 3 5.67 25 5 5.00 29 8 3.63 33 11 3.00 37 16 2.31 40 21 1.90 42 26 1.62 43 31 1.39 i. Using the data above, what is the efficient level of emissions? Explain how you got your answer. (2 MARKS) ii. Is the following statement true or false? The policy that has the highest ratio of benefits to costs (benefits divided by costs) is the most efficient policy. Explain your answer. (2 MARKS) b) Consider a policy to reduce the emissions of an industry from their aggregate unregulated level EU to a lower level E. With the graph below illustrate a situation in which benefit of the proposed policy outweighs the cost, but E is not efficient. Provide a brief explanation. (6 MARKS) Aggregate Marginal Abatement Cost Aggregate Marginal Damage ET EV Aggregate Emissions Activate v Go to Setting

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