Now suppose country A imposes a tax 7 on A's production of QA to curb emissions....

 

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Now suppose country A imposes a tax 7 on A's production of QA to curb emissions. Country B, however, is not taxed. A's cost function is now CA (A) = 4894, while B's cost function is CB (9B) = 5qB. World demand is P= 100 - Q. The amount of greenhouse gas emissions per unit is still 0.5, such that total world emissions are given by 0.5Q. What are total world emissions after country A enacts a carbon tax? This question will show how incomplete regulation can lead to "carbon leakage". Despite A reducing output (and thus emissions), total world emissions are only partially reduced, since B responds by increasing its output (and thus emissions). Estimation of carbon leakage is an active area of research in environmental economics. Answer: Check Now suppose country A imposes a tax 7 on A's production of QA to curb emissions. Country B, however, is not taxed. A's cost function is now CA (A) = 4894, while B's cost function is CB (9B) = 5qB. World demand is P= 100 - Q. The amount of greenhouse gas emissions per unit is still 0.5, such that total world emissions are given by 0.5Q. What are total world emissions after country A enacts a carbon tax? This question will show how incomplete regulation can lead to "carbon leakage". Despite A reducing output (and thus emissions), total world emissions are only partially reduced, since B responds by increasing its output (and thus emissions). Estimation of carbon leakage is an active area of research in environmental economics. Answer: Check

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