1. High concentrations of sulfur emitted by coal fired electricity plants are toxic for humans. They also form sulfuric acid that falls in rain and damages crops, forests, and lakes. Since 1995, the US has operated a sulfur oxide tradable permit market that reduced sulfur emissions to less than half their 1980 level. What is it about the coal fired electricity producers and the marginal damage of their output that probably made the tradable permit market more socially efficient than a regulation requiring the same percentage reduction in emissions every year at every coal fired electricity plant? (Note that setting up a permit market is much more expensive than imposing such a regulation.) Explain your answer. a. b. Draw a graph of demand, supply and social marginal cost of US coal fired electricity in a one year period just before the pandemic. Do your best to make your demand and supply curves reasonably approximate demand and supply of this good during that period. Draw the graph so that a sulfur oxide permit market is likely to be more socially efficient than a tax as a way of reducing sulfur emissions. Justify the shapes of the curves in your graph and justify the claim that with the curves in your graph, a permit market is likely to be more socially efficient than a tax.
1. High concentrations of sulfur emitted by coal fired electricity plants are toxic for humans. They also form sulfuric acid that falls in rain and damages crops, forests, and lakes. Since 1995, the US has operated a sulfur oxide tradable permit market that reduced sulfur emissions to less than half their 1980 level. What is it about the coal fired electricity producers and the marginal damage of their output that probably made the tradable permit market more socially efficient than a regulation requiring the same percentage reduction in emissions every year at every coal fired electricity plant? (Note that setting up a permit market is much more expensive than imposing such a regulation.) Explain your answer. a. b. Draw a graph of demand, supply and social marginal cost of US coal fired electricity in a one year period just before the pandemic. Do your best to make your demand and supply curves reasonably approximate demand and supply of this good during that period. Draw the graph so that a sulfur oxide permit market is likely to be more socially efficient than a tax as a way of reducing sulfur emissions. Justify the shapes of the curves in your graph and justify the claim that with the curves in your graph, a permit market is likely to be more socially efficient than a tax.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. High concentrations of sulfur emitted by coal fired electricity plants are toxic for humans. They also
form sulfuric acid that falls in rain and damages crops, forests, and lakes. Since 1995, the US has operated
a sulfur oxide tradable permit market that reduced sulfur emissions to less than half their 1980 level.
a. What is it about the coal fired electricity producers and the marginal damage of their output that
probably made the tradable permit market more socially efficient than a regulation requiring the same
percentage reduction in emissions every year at every coal fired electricity plant? (Note that setting up a
permit market is much more expensive than imposing such a regulation.) Explain your answer.
b. Draw a graph of demand, supply and social marginal cost of US coal fired electricity in a one year
period just before the pandemic. Do your best to make your demand and supply curves reasonably
approximate demand and supply of this good during that period. Draw the graph so that a sulfur oxide
permit market is likely to be more socially efficient than a tax as a way of reducing sulfur emissions. Justify
the shapes of the curves in your graph and justify the claim that with the curves in your graph, a permit
market is likely to be more socially efficient than a tax.
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