Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 21 - 3 E_1 MAC_2 = 17 - E_2 and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .25*E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If firm 2 is initially grandfathered 3 permits, it will buy ____ more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional.

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 12-2E_1 MAC_2=9-E_2, and assume marginal external damages (MED) from aggregate emissions from the two firms (E_Agg) is: MED = E_Agg. Total external damages at the socially efficient level of aggregate emissions is Answer: 1

Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant marginal external cost (MEC) of $75 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for bolts.   Use the purple points (diamond symbol) to plot the marginal social costs (MS) curve when the marginal external cost is $75 per ton.

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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 24 - 2E_1 MAC_2 = 16 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = 2E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg).  If firm 1 is initially grandfathered 2 permits, it will buy ____ more permits.

Given the following information:  Initially, a perfectly competitive market for a product is in equilibrium, with an upward-sloping straight-line market supply curve, a downward-sloping straight-line market demand curve, and a market price of $30 per unit.  Consumption of this product causes pollution.  Initially, the marginal external cost of the pollution caused by consuming the product is $9 per unit.  There is no government policy toward the externality. The government then mandates a shift to a new product version, and all firms adopt and produce the latest version.  Consumers view the new product version as equally as good as the initial product version. Consumption of the new version of the product causes less pollution, and the marginal external cost decreases by $3 per unit.  For each firm, production of the new product version does not change fixed cost, but it does increase average variable cost by $3 per unit. If necessary, the market adjusts to a new equilibrium.  There is…

Given the same marginal damage and same marginal abatement cost curve, the socially efficient emission subsidy is the same magnitude (dollars per ton) as the socially efficient emission tax (dollars per ton). True False Next

Suppose that a firm's marginal abatement cost function with existing technologies is MAC = 12  - E. If the firm adopts new pollution abatement technologies, then its marginal abatement cost function will become MAC = 6  - 0.5E. With an emissions tax of $4, the benefits of adopting the new technologies equal $____. Please round your final answer to two decimal places if necessary. THE ANSWER IS NOT 16  Maybe 4?

The supply and demand of sugar are given as           Qs = 5P,  Qd = 250- P   where Qs is tons supplied per year, P is the price per ton; Qd is tons demanded per year. Because of the pollution associated with production, marginal external costs of 40 are associated with each ton of sugar.  Assuming that sugar is sold in a competitive market,   What is the market price? How many tons of paper will be produced per year at that price? What is the efficient output of paper? What is the amount of total Pigouvian tax to achieve efficiency? What is the amount of total Pigouvian subsidy to achieve efficiency?

Consider a market where the demand curve is given by P = 190 – 0.2Q and the supply curve is given by P = 41 + 0.1Q. Production of this good generates an external cost as measured by the marginal external cost function MEC = 0.1Q. If the government wants to encourage firms to produce at the socially efficient level of output then how large should the per unit tax be? Enter a number rounded to two decimal places as necessary