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The figure below shows Marginal Damage from emissions, the regulator’s BELIEF about the aggregate marginal abatement cost (MAC) and the TRUE aggregate marginal abatement cost that is unobservable by the regulator. Use the figure to answer Questions 20 – 23.
[20] Suppose the regulator issued E1 permits to the industry. What is the competitive market permit price?
[21] Suppose the regulator issued E1 permits to the industry. What area(s) represent the welfare loss due to the uncertainty in aggregate marginal abatement costs?
[22] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What per-unit tax would the regulator set?
b) What level of aggregate emissions would result given the regulator’s tax?
[23] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What area(s) represent the welfare loss due to the uncertainty in aggregate marginal abatement costs?
b) Which policy (taxes or permits) appears to result in a larger welfare loss due to uncertainty?
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[22] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What per-unit tax would the regulator set?
b) What level of aggregate emissions would result given the regulator’s tax?
[23] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What area(s) represent the welfare loss due to the uncertainty in aggregate marginal abatement costs?
b) Which policy (taxes or permits) appears to result in a larger welfare loss due to uncertainty?
[22] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What per-unit tax would the regulator set?
b) What level of aggregate emissions would result given the regulator’s tax?
[23] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax.
a) What area(s) represent the welfare loss due to the uncertainty in aggregate marginal abatement costs?
b) Which policy (taxes or permits) appears to result in a larger welfare loss due to uncertainty?
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