Suppose that a regulator plans regulate particulate matter (E) from two wood-fired pizza restaurants. The marginal damages from particulate matter are given by MD=5. The marginal abatement cost curves for the two restaurants are: ►Restaurant 1: MAC₁ = 10 - E₁ ►Restaurant 2: MAC2 = 6-E2 1. What level of particulate matter will each restaurant emit in the absence of regulation? Illustrate the unregulated equilibrium on a graph. 2. Suppose that the regulator enacts a cap and trade system that caps total emissions at E = 8, and allocates E/2 permits to each restaurant. What would the market price for permits be in this case? Is the outcome efficient? If not, calculate the DWL from the cap and trade system. Illustrate the outcome with cap and trade on a graph. 3. Now suppose that the regulator instead enacts a pollution tax of 6 per unit of particulate matter emitted. Is this policy better for society? Why or why not?

Suppose that a regulator plans regulate particulate matter (E) from two wood-fired pizza restaurants. The marginal damages from particulate matter are given by MD=5. The marginal abatement cost curves for the two restaurants are: ►Restaurant 1: MAC₁ = 10 - E₁ ►Restaurant 2: MAC2 = 6-E2 1. What level of particulate matter will each restaurant emit in the absence of regulation? Illustrate the unregulated equilibrium on a graph. 2. Suppose that the regulator enacts a cap and trade system that caps total emissions at E = 8, and allocates E/2 permits to each restaurant. What would the market price for permits be in this case? Is the outcome efficient? If not, calculate the DWL from the cap and trade system. Illustrate the outcome with cap and trade on a graph. 3. Now suppose that the regulator instead enacts a pollution tax of 6 per unit of particulate matter emitted. Is this policy better for society? Why or why not?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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