Two power plants operate in the same town. Each plant currently emits 7 tons of emissions peryear or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall toachieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs givenby: MC₁ = 12-2A1, Power plant 2 has marginal abatement costs given by: MC2 = 10-A2. Supposethe government wished to cost-effectively achieve the abatement target using a Pigouvian Tax.What tax should the government set to do so? Assume the marginal benefits of abatement arezero.

When the act of consumption or production affects the third party who is not involved in the process…

wo power plants operate in the same town. Each plant currently emits 7 tons of emissions per wear or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given by: MC₁-12-2A₁. Power plant 2 has marginal abatement costs given by: MC2 = 10-A₂ Suppose the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax. What tax should the government set to do so? Assume the marginal benefits of abatement are zero.

wo power plants operate in the same town. Each plant currently emits 7 tons of emissions per wear or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given by: MC₁-12-2A₁. Power plant 2 has marginal abatement costs given by: MC2 = 10-A₂ Suppose the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax. What tax should the government set to do so? Assume the marginal benefits of abatement are zero.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: 1602AA MACe=− and 100BB MACe=−, where A e represents firm A’s emissions in tons and B e represents firm B’s emissions in tons. Suppose the government wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1 ton, and that the market for permits is perfectly competitive. a. Suppose the government initially distributes the total number of TEPs it issues equally between the two firms. The permits are distributed free of charge. Once trade in permits takes place, what will be the equilibrium in the market for TEPs (i.e. which firm will buy how many TEPs from the other, and at what price)? b. Briefly describe three problems of setting up a TEP market.
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