Homework (Ch 10) Back to Assignment Attempts: Average: 13 7. Correcting for nega

Question

Homework (Ch 10) Back to Assignment Attempts: Average: 13 7. Correcting for negative externalities- Taxes versus tradable permits Power stations emit sulfur dioxide 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 power 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 sulfur dioxide). 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 ?? 56 R Price (Dollars per ton) Quanti Demanded (Millions of tons) 270 C42 35 t?#@??.) Co xll O Type here to search .-

Explanation / Answer

Ans

Blank 1: $42/tonn (Since the optimal quantity is 120 million tons, so appropriate corresponding price as per the diagram is $42/ tonn)

Blank 2: It depends upon the demand and supply of tradable permits. But it would be definitely less than $42 per tonn.

Blank 3: Taxes because it would generate additional revenue. The permits can be traded among the firms and accordingly one firm can emit more pollution then another firms.

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