Question 14 The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating QO units of pollution. MCB Dellers per un L po 9₂ 91 MCA Pation Abatement Suppose a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because its total savings from abating less (areas 1+ 2+ 3) exceed the total costs of Firm A abating more (area 6). Firm B has lower costs of pollution abatement than Firm A. Firm B can buy the permits at a lower price than Firm A. its total savings from abating less (areas 1+ 2+ 3) exceed the cost of buying the permits (areas 2 + 3).

Question 14 The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating QO units of pollution. MCB Dellers per un L po 9₂ 91 MCA Pation Abatement Suppose a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because its total savings from abating less (areas 1+ 2+ 3) exceed the total costs of Firm A abating more (area 6). Firm B has lower costs of pollution abatement than Firm A. Firm B can buy the permits at a lower price than Firm A. its total savings from abating less (areas 1+ 2+ 3) exceed the cost of buying the permits (areas 2 + 3).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Look at the figures below representing pollution reduction with plants A and B. The government accurately estimates marginal costs and benefits from pollution reduction and sets the tax and regulation accordingly. Chose the correct statement.
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firms matter for efficiency? Explain. 9. There are three industrial firms in Happy Valley. Initial Pollution Cost of Reducing Firm Level Pollution by 1 Unit A 30 units $20 В 40 units $30 C 20 units $10 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? b. How much higher would the costs of pollution reduction be if the permits could not be traded? Answers
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Figure above shows the Marginal Benefit to a village from harvesting forest land, as well as the Marginal Costs to a nearby City from the harvest. Assuming the Village controls the forest. Without any negotiation between the village and the City, how many acres will be harvested?