Please help me answer the question 4 and 5:) 4. Use a graph to illustrate the qu

Question

Please help me answer the question 4 and 5:)

4. Use a graph to illustrate the quantity of pollution that would be emitted (1) after a corrective tax has been imposed (896) (2) after tradable pollution permits have been imposed. (896) Could these two quantities ever be equivalent? 5. Assume there are only two people in the market. Person A's demand is PA-1/20A+2, person B's demand is P 2/3Qat4 (1) Draw the market demand of public good. (896) (2) If marginal cost is 3, what is the optimal provision of public good? (8%)

Explanation / Answer

a) The consumer's budget constraint for the current period:

c + s = y - ts, where ts= taxes in all the constraints given

b) The consumer's budget constraint for the future period:

c' = (1+r)s + y' - ts'

c' = (1+r)(1-t) + y' - ts'

c) One lifetime budget constraint:

s = c' - y' + ts'/ (1+r)

d) consumer problem occurs when he has to decide whether to choose present consumption or future consumption. The optimal point occurs where in the graph, the slope of the highest attained indifference curve is equivalent to the slope of the budget constraint.

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