Consider two firms with the following marginal abatement costs (MAC) functions: MAC1 = 25 - E1 MAC2 = 30 - 2E2 Assume that marginal external damages (MED) from the aggregate emissions of both firms (i.e., EA = E1+E2) is: MED = 2EA To achieve the socially efficient level of aggregate emissions (EA*) using a cap and trade (i.e., tradable permits) policy, the government should set the permit cap (i.e., total number of permits) equal to ____. Please round your answer to two decimal places if necessary.

Given the following information:  Initially, a perfectly competitive market for a product is in equilibrium, with an upward-sloping straight-line market supply curve, a downward-sloping straight-line market demand curve, and a market price of $30 per unit.  Consumption of this product causes pollution.  Initially, the marginal external cost of the pollution caused by consuming the product is $9 per unit.  There is no government policy toward the externality. The government then mandates a shift to a new product version, and all firms adopt and produce the latest version.  Consumers view the new product version as equally as good as the initial product version. Consumption of the new version of the product causes less pollution, and the marginal external cost decreases by $3 per unit.  For each firm, production of the new product version does not change fixed cost, but it does increase average variable cost by $3 per unit. If necessary, the market adjusts to a new equilibrium.  There is…

Calculate private market equilibrium and the socially optimal equilibrium for the following negative production externality. (note: demand and supply functions are already in the inverse format) Demand: P = 100 - Q Supply: P=-50 + 2Q Marginal External Cost: MEC = 2Q Private Market Equilibrium = Socially Optimal Equilibrium = (enter your responses rounded to a whole number)

Given the same marginal damage and same marginal abatement cost curve, the socially efficient emission subsidy is the same magnitude (dollars per ton) as the socially efficient emission tax (dollars per ton). True False Next

The supply and demand of sugar are given as           Qs = 5P,  Qd = 250- P   where Qs is tons supplied per year, P is the price per ton; Qd is tons demanded per year. Because of the pollution associated with production, marginal external costs of 40 are associated with each ton of sugar.  Assuming that sugar is sold in a competitive market,   What is the market price? How many tons of paper will be produced per year at that price? What is the efficient output of paper? What is the amount of total Pigouvian tax to achieve efficiency? What is the amount of total Pigouvian subsidy to achieve efficiency?

Consider a market where the demand curve is given by P = 190 – 0.2Q and the supply curve is given by P = 41 + 0.1Q. Production of this good generates an external cost as measured by the marginal external cost function MEC = 0.1Q. If the government wants to encourage firms to produce at the socially efficient level of output then how large should the per unit tax be? Enter a number rounded to two decimal places as necessary

Consider an industry with two firms that emit a uniformly mixed air pollutant (e.g., carbon dioxide). The marginal abatement cost functions for Firm 1 and Firm 2 are: MAC1 = 100 - e1 MAC2 = 100 - 4e2 Aggregate emissions for the industry are denoted as E = e1 + e2. 1. In an unregulated environment how many units of emissions does each firm emit?             Firm 1’s unregulated level of emissions ____________             Firm 2’s unregulated level of emissions ____________             Total unregulated level of emissions ______________ Suppose a regulator has a goal of reducing the total level of emissions from the amount from the amount you answered in [1] to 25 units. The regulator would like to achieve the goal of 25 units of total emissions in a cost-effective way. To do so it issues 25 permits, 10 are given to Firm 1 and 15 are given to Firm 2. A firm can only emit a unit of pollution if they have a permit for that unit, otherwise they must abate. After the permits are allocated,…

The supply and demand of sugar are given as           Qs = 5P,  Qd = 250- P   where Qs is tons supplied per year, P is the price per ton; Qd is tons demanded per year. Because of the pollution associated with production, marginal external costs of 40 are associated with each ton of sugar.  Assuming that sugar is sold in a competitive market,   What is the market price? How many tons of paper will be produced per year at that price? What is the efficient output of paper? What is the amount of total Pigouvian tax to achieve efficiency? What is the amount of total Pigouvian subsidy to achieve efficiency?

Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. To design an efficient emissions standard, the government needs to determine which is the efficient abatement allocation (aL, aH). In order to do this, obtain a cost effective abatement allocation (aL, aH)that provides an aggregate abatement level A = aL + aH, and then proceed to determine the efficient level A (Hint: You should obtain that MCA = A=3)

Consider a manufactured good whose production process generates pollution.  The demand for the product is Q=100-3P.  The market supply function is Q=P.  The marginal external cost is MEC=2Q.  What is the emissions tax that needs to be imposed to achieve the social optimum?  Illustrate on graph  What is the economic incidence of this emissions tax? In other words, what proportion of this tax will be paid by producers of this product and what proportion of the tax will be paid by consumers?