Microeconomics (7th Edition)
Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 5, Problem 5.2CTE
To determine

Efficient level of pollution.

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Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?
There are three identical firms in Happy Valley. Firms Initial Pollution Level Cost of Reducing Pollution by 1 unit A 30 units $20 B 40 units $30 C 20 units $10   The government wants to reduce total pollution to 60 units, so it gives each firm 20 tradable permits. 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?   How much larger would the cost of pollution reduction be if the permits could not be traded?
Economists define the efficient amount of fund pollutants as the amount that minimizes the sum of damage and control costs. Using this definition, they derive two general rules, one of which is that the efficient level of pollution is not generally zero. Briefly explain why this is true.
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