Suppose the government has determined that the socially optimal quantity of particulate matter 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 $ of particulate matter 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 particulate matter 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. An environmental study conducted in a particular city suggests that if a chemical plant emits more than 60 million tons of chemicals each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. per ton Corrective taxes Tradable permits
Suppose the government has determined that the socially optimal quantity of particulate matter 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 $ of particulate matter 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 particulate matter 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. An environmental study conducted in a particular city suggests that if a chemical plant emits more than 60 million tons of chemicals each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. per ton Corrective taxes Tradable permits
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:PRICE (Dollars per ton)
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QUANTITY (Millions of tons)
Graph Input Tool
Daily Demand for Pollution Rights
Price
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Quantity
Demanded
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Suppose the government has determined that the socially optimal quantity of particulate matter 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 $
of particulate matter emitted will achieve the desired level of pollution.
?
per ton
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 particulate matter 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
Transcribed Image Text:Suppose the government has determined that the socially optimal quantity of particulate matter 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 $
of particulate matter 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 particulate matter 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.
An environmental study conducted in a particular city suggests that if a chemical plant emits more than 60 million tons of chemicals
each year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking.
If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply.
per ton
Corrective taxes
Tradable permits
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