1. Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is perfectly competitive and that "one allowance" lets you produce one unit of the good.) 2. What will they be worth if the quantity is capped at 500? 3. What if it is capped at 700?
Consider a market with the following supply and
P 5 6 7 8 9 10 11 12 13 14
QS 200 300 400 500 600 700 800 900 1000 1100
QD 800 750 700 650 600 550 500 450 400 35
For the questions assume that there is a $3 external COST.
1. Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is
2. What will they be worth if the quantity is capped at 500?
3. What if it is capped at 700?
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