Economics Principles For A Changing World
Economics Principles For A Changing World
4th Edition
ISBN: 9781464186660
Author: CHIANG, Eric P.
Publisher: Worth Publishers,
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Chapter 6, Problem 1QP
To determine

Relation between the price and consumption of goods using the budget line.

Expert Solution & Answer
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Explanation of Solution

Budget line shows all the possible combinations of goods and services that can be purchased with the entire income, at a given price level. When the price of one commodity reduces, an individual can purchase both goods at a lower price. Therefore, he can buy additional quantity of both goods. On another point of view, a reduction in price means increase in relative income although the budget line remains the same.

Thus, people purchase more quantity of both goods when the price of a good reduces.

Economics Concept Introduction

Budget line: Budget line refers to all the possible combinations of goods and services that can be purchased with the entire income, at a given price level.

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PART II: Multipart Problems wood or solem of triflussd aidi 1. Assume that a society has a polluting industry comprising two firms, where the industry-level marginal abatement cost curve is given by: MAC = 24 - ()E and the marginal damage function is given by: MDF = 2E. What is the efficient level of emissions? b. What constant per-unit emissions tax could achieve the efficient emissions level? points) c. What is the net benefit to society of moving from the unregulated emissions level to the efficient level? In response to industry complaints about the costs of the tax, a cap-and-trade program is proposed. The marginal abatement cost curves for the two firms are given by: MAC=24-E and MAC2 = 24-2E2. d. How could a cap-and-trade program that achieves the same level of emissions as the tax be designed to reduce the costs of regulation to the two firms?
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