Suppose the government has determined that the socially optimal quantity of chemical pollution is 120 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of per t of chemicals emitted will achieve the desired level of pollution. Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 120 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $ The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario. Imagine that new research suggests that if manufacturers in a particular city reduced their emissions to 60 million tons of waste per year, the air quality would improve dramatically. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. O Corrective taxes Tradable permits

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

I need help with this one please. thank you!

 

Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution
a negative
externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution.
To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the
daily demand for pollution rights.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
Graph Input Tool
(?
Daily Demand for Pollution Rights
80
72
I Price
(Dollars per ton)
8
64
Quantity
Demanded
180
56
(Millions of tons)
48
40
32
24
Demand
16
+
+
40
60
80
100 120 140 160 180 200
QUANTITY (Millions of tons)
PRICE (Dollars per ton)
20
Transcribed Image Text:Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool (? Daily Demand for Pollution Rights 80 72 I Price (Dollars per ton) 8 64 Quantity Demanded 180 56 (Millions of tons) 48 40 32 24 Demand 16 + + 40 60 80 100 120 140 160 180 200 QUANTITY (Millions of tons) PRICE (Dollars per ton) 20
Suppose the government has determined that the socially optimal quantity of chemical pollution is 120 million tons per day.
One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $
per to
of chemicals emitted will achieve the desired level of pollution.
Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the
desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To
achieve the socially optimal quantity of pollution, the government auctions off 120 million pollution permits. Given this quantity of permits, the price
for each permit in the market for pollution rights will be $
The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of
pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy
goal, consider the following scenario.
Imagine that new research suggests that if manufacturers in a particular city reduced their emissions to 60 million tons of waste per
year, the air quality would improve dramatically.
If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply.
Corrective taxes
Tradable permits
Transcribed Image Text:Suppose the government has determined that the socially optimal quantity of chemical pollution is 120 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $ per to of chemicals emitted will achieve the desired level of pollution. Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 120 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $ The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario. Imagine that new research suggests that if manufacturers in a particular city reduced their emissions to 60 million tons of waste per year, the air quality would improve dramatically. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. Corrective taxes Tradable permits
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Asymmetric Information
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education