PRICE (Dollars perton) 8 81 72 63 54 45 30 27 18 9 0 Demand 020 40 60 80 100 120 140 160 180 200 QUANTITY (Millions of tons) Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton) Quantity Demanded (Millions of tons) 180 Suppose the government has determined that the socially optimal quantity of chemical pollution is 140 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 S of chemicals emitted will achieve the desired level of pollution. Corrective taxes Tradable permits (?) Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 140 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be 5 The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario. An environmental study conducted in a particular city suggests that if a chemical plant emits more than 30 million tons of chemicals each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. per ton
PRICE (Dollars perton) 8 81 72 63 54 45 30 27 18 9 0 Demand 020 40 60 80 100 120 140 160 180 200 QUANTITY (Millions of tons) Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton) Quantity Demanded (Millions of tons) 180 Suppose the government has determined that the socially optimal quantity of chemical pollution is 140 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 S of chemicals emitted will achieve the desired level of pollution. Corrective taxes Tradable permits (?) Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 140 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be 5 The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario. An environmental study conducted in a particular city suggests that if a chemical plant emits more than 30 million tons of chemicals each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. per ton
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:PRICE (Dollars perton)
90
81
72
63
54
45
30
27
18
9
0
0
+
I
40 60 80 100 120 140 160 180 200
QUANTITY (Millions of tons)
20 40
Demand
Graph Input Tool
Daily Demand for Pollution Rights
Price
(Dollars per ton)
Quantity
Demanded
(Millions of tons)
9
180
Suppose the government has determined that the socially optimal quantity of chemical pollution is 140 million tons per day.
Corrective taxes
Tradable permits
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 S
of chemicals emitted will achieve the desired level of pollution.
(?)
Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the
desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To
achieve the socially optimal quantity of pollution, the government auctions off 140 million pollution permits. Given this quantity of permits, the price
for each permit in the market for pollution rights will be $
The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of
pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy
goal, consider the following scenario.
An environmental study conducted in a particular city suggests that if a chemical plant emits more than 30 million tons of chemicals
each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking.
If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply.
per ton
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