Suppose the city of metropolis is trying yo get dry cleaners to reduce their air

Question

Suppose the city of metropolis is trying yo get dry cleaners to reduce their air pollution. One proposal would be to impose a tax on dry cleaners equal to T* on each unit of emissions as shown on the graph for a single firm below. Answer each of the following very short questions about that policy. (please explain why correct answer)

(a) What is the cost to the firm of the policy (given that it behaves optimally)? _____

(b) Select word or phrase that makes statemnt true: "Pollution abatement from dry cleaners __will or will not__ be divided cost effecively amongst them."

(c) Suppose the city switched from the emissions tax T* to a tradeable permit scheme in which a total of E* permits are auctioned off to firms. In the long run, will emissions, increase, decrease, or stay the same.

the graph for a single firm below. Answer each of the follo hat policy. $ 4 MAC Carbon Dioxide Emissions vel of pollution will the firm choose given this policy?. C*

Explanation / Answer

a) When tax T* is imposed on each unit of emission, total tax is T*E* as total emission is E*.  

b) Every firm will not reduce their emissions by the same quantity. High-cost firms will prefer to give taxes and will emit more. But low-cost firms will not prefer to give more tax so they will reduce emissions by a higher amount. Pollution abatement from dry cleaners will not be divided cost effectively amongst them.

c) Now E* is permitted. No one can emit more than that level. So in the long run emission will decrease as each industry lower their emission by E*.

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