Answered: Q* Quantity of discharge Dollars per…

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter22: Contemporary Issues In The U.s. Economy

Section: Chapter Questions

Problem 5DQ

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The following graph shows the market
for pollution rights.
a. If there are no restrictions on pollution, what amount is discharged?
b. What is the quantity supplied and the quantity demanded if the government restricts the amount of discharge to Q* but gives the permits away? c. Where is market equilibrium if the government sells the permits? Illustrate this on the graph.
d. What happens to market equilibrium if the gvernment reduces the amount of discharge permitted to Q**? Illustrate this on the graph.

Q*
Quantity
of discharge
Dollars per unit

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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Q* Quantity of discharge Dollars per unit