Consider a market with the following supply and demand.  (It may help to draw a graph for these questions.) 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 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?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Consider a market with the following supply and demand.  (It may help to draw a graph for these questions.)

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 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?

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