Suppose the government has determined that the socially optimal quantity of chemical pollution is 160 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. tax (or price in this case) of S per ton 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 160 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $
Suppose the government has determined that the socially optimal quantity of chemical pollution is 160 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. tax (or price in this case) of S per ton 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 160 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section10.1: Externalities And Market Inefficiency
Problem 1QQ
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