In panel (a), the EPA sets a price on pollution by levying a corrective tax, and the demand curve determines the quantity of pollution. In panel (b), the EPA limits the quantity of pollution by limiting the number of pollution permits, and the demand curve determines the price of pollution. The price and quantity of pollution are the same in the two cases. FIGURE 4 The Equivalence of Corrective Taxes and Pollution Permits (a) Corrective Tax (b) Pollution Permits Price of Pollution Price of Pollution Supply of pollution permits Corrective tax 1. A corrective tax sets the Demand for pollution rights Quantity of Pollution price of pollution ... Demand for pollution rights Quantity of Pollution 2. ... which, together with the demand curve, determines the quantity of pollution. 2. ... which, together with the demand curve, determines the price of pollution. 1. Pollution permits set the quantity of pollution ...
In panel (a), the EPA sets a price on pollution by levying a corrective tax, and the demand curve determines the quantity of pollution. In panel (b), the EPA limits the quantity of pollution by limiting the number of pollution permits, and the demand curve determines the price of pollution. The price and quantity of pollution are the same in the two cases. FIGURE 4 The Equivalence of Corrective Taxes and Pollution Permits (a) Corrective Tax (b) Pollution Permits Price of Pollution Price of Pollution Supply of pollution permits Corrective tax 1. A corrective tax sets the Demand for pollution rights Quantity of Pollution price of pollution ... Demand for pollution rights Quantity of Pollution 2. ... which, together with the demand curve, determines the quantity of pollution. 2. ... which, together with the demand curve, determines the price of pollution. 1. Pollution permits set the quantity of pollution ...
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 7PA
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Figure 4 shows that for any given demand curve for the right to pollute, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits. Suppose there is a sharp improvement in the technology for controlling pollution. a. Using graphs similar to those in Figure 4, illustrate the effect of this development on the demand for pollution rights. b. What is the effect on the price and quantity of pollution under each regulatory system? Explain. |
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