#9 tradable perma. Does it matter for economic efficiency whether thegovernment distributes or auctions the permits?Why or why not?b. If the government chooses to distribute thepermits, does the allocation of permits amongfirms matter for efficiency? Explain.9. There are three industrial firms in Happy Valley.Initial PollutionCost of ReducingFirmLevelPollution by 1 UnitA30 units$2040 units$30C20 units$10The government wants to reduce pollution to 60 units,so it gives each firm 20 tradable pollution permits.a. Who sells permits and how many do they sell?Who buys permits and how many do they buy?Briefly explain why the sellers and buyers are eachwilling to do so. What is the total cost of pollutionreduction in this situation?b. How much higher would the costs of pollutionreduction be if the permits could not be traded?

9A) Firm Buys or Sells Initial Pollution Level permits after Trade Remaining Pollution…

Answered: a. Who sells permits and how many do…

a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are ea willing to do so. What is the total cost of polluti Lhie

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

tradable perm
a. Does it matter for economic efficiency whether the
government distributes or auctions the permits?
Why or why not?
b. If the government chooses to distribute the
permits, does the allocation of permits among
firms matter for efficiency? Explain.
9. There are three industrial firms in Happy Valley.
Initial Pollution
Cost of Reducing
Firm
Level
Pollution by 1 Unit
A
30 units
$20
40 units
$30
C
20 units
$10
The government wants to reduce pollution to 60 units,
so it gives each firm 20 tradable pollution permits.
a. Who sells permits and how many do they sell?
Who buys permits and how many do they buy?
Briefly explain why the sellers and buyers are each
willing to do so. What is the total cost of pollution
reduction in this situation?
b. How much higher would the costs of pollution
reduction be if the permits could not be traded?

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