Assume that the market for tradable emissions permits by power plants has been operating efficiently for several years. An engineering firmthen invents a lower cost device for pollution abatement. What happens to the equilibrium market price of a tradable permit, and why? Draw a supply and demand diagram, with a fixed supply of pollution permits, along with your answer.Has the socially optimal amount of pollution increased or decreased? Explai

Assume that the market for tradable emissions permits by power plants has been operating efficiently for several years. An engineering firmthen invents a lower cost device for pollution abatement. What happens to the equilibrium market price of a tradable permit, and why? Draw a supply and demand diagram, with a fixed supply of pollution permits, along with your answer.Has the socially optimal amount of pollution increased or decreased? Explai

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.9P

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Similar questions

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a) If the total benefits to society of achieving some specific level of pollution control aresignificantly greater than the total costs to society of doing so, will it necessarily beeconomically efficient (socially optimal) to do so? Explain your answer with words and agraph.b) In March 2011, the US EPA issued a report that looked at the results of the Clean Air Actfrom 1990 to 2020 (see: http://www.epa.gov/air/sect812/prospective2.html). This reviewfound that in the central estimate of the CAA’s impact, benefits exceeded costs by a ratio of30 to 1. This leads some environmental policy commentators to conclude that the EPA hadnot gone far enough in reducing air pollution. Under what conditions would a benefit costratio of 30:1 imply that it would be economically efficient to further reduce air pollutionunder the CAA? Assuming the EPA’s benefit-cost estimate is correct, is it possible that itcould actually be economically efficient to loosen, rather than strengthen, air…
b. If firms' abatement costs fall, how, if at all, does this affect the amount of pollution that firms will emit if there is a limit on pollution?
Are socially efficient level of emission and market efficiency is equal? Explain with help of diagram?