Imagine that new research suggests that if manufacturers in a particular city reduced their emissions to 70 million tons of waste peryear, the air quality would improve dramatically.If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply.Tradable permitsCorrective taxes 7. Correcting for negative externalities - Taxes versus tradablepermitsNuclear facilities emit radioactive waste as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is anegative externality of electricity production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the costof pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of radioactive waste). The followinggraph shows the daily demand for pollution rights.Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.Note: OncePRICE(Dollars perton)23 870494235211470Demand0 40 80 120 160 200 240 280 320 360 400QUANTITY (Millions of tons)Graph Input ToolDaily Demand for Pollution RightsPrice(Dollars per ton)QuantityDemanded(Millions of tons)7360Suppose the government has determined that the socially optimal quantity of radioactive waste is 160 million tons per day.One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of Sof radioactive waste emitted will achieve the desired level of pollution.?per tonNow suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve thedesired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of radioactive waste perday. To achieve the socially optimal quantity of pollution, the government auctions off 160 million pollution permits. Given this quantity of permits, theprice for each permit in the market for pollution rights will be sThe previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level ofpollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policygoal, consider the following scenario.

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Externality is an economic term that refers to the costs or benefits borne by a third party who has…