Suppose that there are only two polluters in a society. If left uncontrolled, polluter 1 emits...
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Suppose that there are only two polluters in a society. If left uncontrolled, polluter 1 emits 85 units of a pollutant, while polluter 2 emits 15 units. The polluters' marginal abatement costs are MAC1 = 0.25a1 and MAC2 = 2a2. Policy makers have established that 28 units is the level to which emissions of the pollutant should be reduced. a. Using graph(s) and calculations, determine whether imposing an emission standard equal to half of the target would be a cost-effective way to achieve the goal. b. If policymakers opted instead to impose a tax on each unit of emission, at what level should they set the tax in order to achieve the goal? c. Calculate the total cost that each polluter would incur if the emission tax you identified in part b were implemented (i.e., calculate TC1 and TC2 under the emission tax policy from part b). Now suppose that policymakers opt to implement a system of transferable emission permits. Each permit allows its holder to legally emit one unit of pollutant. d. What is the total number of permits that should be allocated to polluters? e. If policymakers initially give the two polluters (free of charge) an equal number of permits (i.e., each polluter gets half of the total number of permits): i. How many permits will polluter 1 buy from polluter 2? ii. How many permits will polluter 2 buy from polluter 1? Suppose that there are only two polluters in a society. If left uncontrolled, polluter 1 emits 85 units of a pollutant, while polluter 2 emits 15 units. The polluters' marginal abatement costs are MAC1 = 0.25a1 and MAC2 = 2a2. Policy makers have established that 28 units is the level to which emissions of the pollutant should be reduced. a. Using graph(s) and calculations, determine whether imposing an emission standard equal to half of the target would be a cost-effective way to achieve the goal. b. If policymakers opted instead to impose a tax on each unit of emission, at what level should they set the tax in order to achieve the goal? c. Calculate the total cost that each polluter would incur if the emission tax you identified in part b were implemented (i.e., calculate TC1 and TC2 under the emission tax policy from part b). Now suppose that policymakers opt to implement a system of transferable emission permits. Each permit allows its holder to legally emit one unit of pollutant. d. What is the total number of permits that should be allocated to polluters? e. If policymakers initially give the two polluters (free of charge) an equal number of permits (i.e., each polluter gets half of the total number of permits): i. How many permits will polluter 1 buy from polluter 2? ii. How many permits will polluter 2 buy from polluter 1?
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