Question

When the marginal social benefit curve is relatively steep butunknown, a quantity-based instrument will yield a larger welfare loss on average than will a price-based instrument.

a. True
b. False

Answer 1

Answer: False

Explanation: The marginal social benefit curve defines the benefits society get from the production of an additional unit. It occurs when consumers are the only group deriving benefit from a product and the steepness of the curve shows the increasing or decreasing benefits derived; describes the net social value of any product, activity or service. When the curve is relatively steep but there exists uncertainty about the marginal social benefit curve, a dead weight loss is created which is the same for price and quantity instruments.