7. Correcting for negative externalities -Taxes versus tradablepermits Paper fac

Question

7. Correcting for negative externalities -Taxes versus tradablepermits Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly Graph Input Tool Daily Demand for Pollution Rights 70 63 56 8 49 2 42 35 28 21 Price (Dollars per ton) 7 Quantit Demanded 270 (Millions of tons) Cr and 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Millions of tons) Suppose the government has determined that the socially optimal quantity of chemical pollution is 150 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 chemicals emitted will achieve the desired level of pollution per ton

Explanation / Answer

Tax of $ 28 will increase the price to $ 35 and reduces the quantity to 150 million tons.

$ 35 will be the price after tradable permits.

Tradable permits and Corrective taxes both reduces pollution to appropriate level.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.