2. (60 points) The Government of Punjab is now concerned with SO2 emissions in both urban...

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2. (60 points) The Government of Punjab is now concerned with SO2 emissions in both urban and rural areas. The bright students of ECON 244 construct the diagram below, depicting the marginal abatement cost of SO2 (C'), the marginal damage in urban areas (D), and the marginal damage in rural areas (D). The marginal abatement cost is the same while the marginal damage is different across urban and rural areas. The alphabetical letters in the diagram represent the areas which contain them. Answer the questions below in terms of these lettered areas and appropriate units. Note that the diagram is not drawn to scale. Rs/ton 50 Tu Tr C' A B C E DF G J H Qu Qr I D D 2 ē QSO2 Emissions (Tons) a. What is the total cost (abatement, damages, and tax burden) when the government sets a differential emissions standard (Qu in urban areas and Q, in rural areas)? b. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform standard at Qr? c. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform standard at Qu? d. What is the difference in the total costs under a uniform standard set at Q, and a differential standard? e. What is the difference in the total costs under a uniform standard set at Qu and a differential standard? f. Comparing the standards Qr and Qu, which one is more cost effective? g. What is the total cost (abatement, damages, and tax burden) when the government sets a differential emissions tax (Tu in urban areas and T, in rural areas)? h. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform tax at Tr? i. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform tax at Tu! j. What is the difference in the total costs under a uniform tax set at T, and a differential tax? k. What is the difference in the total costs under a uniform tax set at Tu, and a differential tax? 1. Comparing the taxes T, and Tu, which one is more cost effective? 2. (60 points) The Government of Punjab is now concerned with SO2 emissions in both urban and rural areas. The bright students of ECON 244 construct the diagram below, depicting the marginal abatement cost of SO2 (C'), the marginal damage in urban areas (D), and the marginal damage in rural areas (D). The marginal abatement cost is the same while the marginal damage is different across urban and rural areas. The alphabetical letters in the diagram represent the areas which contain them. Answer the questions below in terms of these lettered areas and appropriate units. Note that the diagram is not drawn to scale. Rs/ton 50 Tu Tr C' A B C E DF G J H Qu Qr I D D 2 ē QSO2 Emissions (Tons) a. What is the total cost (abatement, damages, and tax burden) when the government sets a differential emissions standard (Qu in urban areas and Q, in rural areas)? b. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform standard at Qr? c. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform standard at Qu? d. What is the difference in the total costs under a uniform standard set at Q, and a differential standard? e. What is the difference in the total costs under a uniform standard set at Qu and a differential standard? f. Comparing the standards Qr and Qu, which one is more cost effective? g. What is the total cost (abatement, damages, and tax burden) when the government sets a differential emissions tax (Tu in urban areas and T, in rural areas)? h. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform tax at Tr? i. What is the total cost (abatement, damages, and tax burden) when the government sets a uniform tax at Tu! j. What is the difference in the total costs under a uniform tax set at T, and a differential tax? k. What is the difference in the total costs under a uniform tax set at Tu, and a differential tax? 1. Comparing the taxes T, and Tu, which one is more cost effective?

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