In a cap and trade system, when allowances aregiven away for free, regulatedfirms can enjoy rents compared to whenallowances are auctioned.a. Explain why rent is generated.b. Does this mean that firms do not pay for theiremissions, and therefore they do not have theincentive to reduce emissions? Explain.c. Same distributional effects can be achieved withan emissions tax where the tax applies only toemissions beyond a certain level. How would thissystem work in terms of giving incentives tothe firms to reduce emissions? Discuss this withthe help of a MB and MC of abatement diagramwhere the emissions tax is set at where MB = MCand the tax-exempt amount of emissions isbetween the maximum and the efficient level ofabatement.

Since the question you have posted consists of multiple parts, we will solve the first two parts for…

In a cap and trade system, when allowances are given away for free, regulated firms can enjoy rents compared to when allowances are auctioned. a. Explain why rent is generated. b. Does this mean that firms do not pay for their emissions, and therefore they do not have the incentive to reduce emissions? Explain.

In a cap and trade system, when allowances are given away for free, regulated firms can enjoy rents compared to when allowances are auctioned. a. Explain why rent is generated. b. Does this mean that firms do not pay for their emissions, and therefore they do not have the incentive to reduce emissions? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Why is emission mitigation is considered as a public good?
Graphically analyze the effect that a revenue neutral carbon tax has on the consumption of carbon intensive goods.
Why do economists prefer corrective taxes and tradeable permits over command and control policies as a way to protect the environment from pollution? Explain
What is an externality? Provide two examples each of positive and negative externalities.
The marginal cost of educating a college student is $2,000 a year. The table shows the marginal benefit schedule of a college education. The marginal external benefit of a college education is a constant $1,000 per student per year. There are no public colleges. If the government subsidizes colleges and sets the subsidy so that the efficient number of students enroll, what is the subsidy per student, how many students enroll, and what is the cost to taxpayers? The subsidy is $ per student and million students enroll. Students (millions per year) 1 2 3 4 5 6 7 8 8 Marginal benefit (dollars per student per year) 5,000 3,000 2,000 1,500 1,200 1,000 800 500
If production of a good is known to create external benefits a. Those benefits are larger than those received by the consumers of that good b. Those benefits are smaller than those received by the consumers of that good c. Those benefits are the same as those received by the consumers of that good
a. What sector produces most of Australia’s GHG emissions? Clearly state the relevant references.b. Why do firms pollute?
Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
What are the two characteristics of public goods? What is the free-rider problem as it related to public goods? Is U.S. border patrol a public good or a private good? Explain.
The graph illustrates the unregulated market for pesticide. When the factories produce pesticide, they also create waste which they dump into a lake on the outskirts of a small town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing pesticide (that is, the marginal social cost of producing the pesticide is double the marginal private cost). If the pesticide factories own the lake, how much pesticide is produced? If the pesticide factories own the lake, the quantity of pesticide produced is tons a week. 1080- 960- 840- 720- 600- 480- 360- 240- 120- 0+ 0 Price and cost (dollars per ton) 30 S 120 D 60 90 Quantity (tons per week) >>> Draw only the objects specified in the question. Q Q 150