Consider a market with the following supply and demand. (It may help to draw a graph for these questions.) P 5 6 7 8 9 10 11 12 13 14 QS 200 300 400 500 600 700 800 900 1000 1100 QD 800 750 700 650 600 550 500 450 400 350 If there is an external cost of $3, what is the efficient quantity? 500 (already answer) If there is an external benefit of $3, what is the efficient quantity? 700 (already answer) For the remaining questions assume that there is a $3 external COST. If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? 3 (already answer) Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is perfectly competitive and that "one allowance" lets you produce one unit of the good.) What will they be worth if the quantity is capped at 500? What if it is capped at 700?
Consider a market with the following supply and demand. (It may help to draw a graph for these questions.)
P 5 6 7 8 9 10 11 12 13 14
QS 200 300 400 500 600 700 800 900 1000 1100
QD 800 750 700 650 600 550 500 450 400 350
If there is an external cost of $3, what is the efficient quantity? 500 (already answer)
If there is an external benefit of $3, what is the efficient quantity? 700 (already answer)
For the remaining questions assume that there is a $3 external COST.
If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? 3 (already answer)
Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is
What will they be worth if the quantity is capped at 500?
What if it is capped at 700?
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