One possible method for reducing emissions of greenhouse gases such as carbon dioxide is to inject the gases into deep saltwater-laden rock formations where they would be trapped for thousands of years. Suppose that the federal government provides a fixed per-unit subsidy to firms that utilize this technology in West Virginia and other locales where such rock formations are known to exist.
a. Use an appropriate diagram to examine the effects of the government subsidy on the production and sale of equipment that injects greenhouse gases into underground rock formations. What happens to the market clearing price of such pollution abatement equipment?
b. Who pays to achieve the results discussed in part (a)?