1. Consider the following supply and demand curves for coal to be burned. Suppose that when...

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1. Consider the following supply and demand curves for coal to be burned. Suppose that when the cost of pollution is incorporated, we get the fol- lowing marginal social cost (MSC) curve: P Coal $80 MSC $60 $48 S = MPC $40 $32 D= MPB = MSB 16 20 40 Qtons (a) What is the equilibrium price and quantity of coal consumed in the free market? (b) What is the efficient quantity of coal to be consumed? (c) If you impose a Pigouvian tax to make the market produce the effi- cient quantity, how high should you set the tax? At this tax, what is consumer surplus, producer surplus, government revenue, and dead- weight loss? (d) Suppose you institute a cap and trade policy at the efficient quantity, where you distribute licenses by giving them to firms for free, without rent-seeking. Under this policy, what is consumer surplus, producer surplus, government revenue, and deadweight loss? 1. Consider the following supply and demand curves for coal to be burned. Suppose that when the cost of pollution is incorporated, we get the fol- lowing marginal social cost (MSC) curve: P Coal $80 MSC $60 $48 S = MPC $40 $32 D= MPB = MSB 16 20 40 Qtons (a) What is the equilibrium price and quantity of coal consumed in the free market? (b) What is the efficient quantity of coal to be consumed? (c) If you impose a Pigouvian tax to make the market produce the effi- cient quantity, how high should you set the tax? At this tax, what is consumer surplus, producer surplus, government revenue, and dead- weight loss? (d) Suppose you institute a cap and trade policy at the efficient quantity, where you distribute licenses by giving them to firms for free, without rent-seeking. Under this policy, what is consumer surplus, producer surplus, government revenue, and deadweight loss?