Suppose the United States Acid Rain Program (ARP), which was established under the 1990 amendments to...

 

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Suppose the United States Acid Rain Program (ARP), which was established under the 1990 amendments to the Clean Air Act, issued 25% more sulfur dioxide (SO₂) credits (i.e. permits) unexpectedly. If the price of SO₂ permits in the U.S. suddenly dropped by 8%, what is the price elasticity of demand for SO₂ permits? (2pts) Suppose part (la) was referencing a total credit increase from 40 to 50 credits, and a SO₂ credit price decrease from $200 to $184 per credit. What tax on SO₂ would the United States need to set if they wanted to achieve the same level of SO₂ emissions reductions as those under the new equilibrium for the Acid Rain Program? (2pts) | Provide a brief explanation for why you obtained your answer in (1b). (2pts) Why is the permit trading program in (la) preferable over command-and-control policies (to economists) if both policies attempt to regulate the total amount of SO₂ emissions? Assume command-and-control policies set allowable SO₂ emissions for each firm to be equal, and the total number of SO₂ emissions are the same for both policies. Explain. (2pts) Suppose the United States Acid Rain Program (ARP), which was established under the 1990 amendments to the Clean Air Act, issued 25% more sulfur dioxide (SO₂) credits (i.e. permits) unexpectedly. If the price of SO₂ permits in the U.S. suddenly dropped by 8%, what is the price elasticity of demand for SO₂ permits? (2pts) Suppose part (la) was referencing a total credit increase from 40 to 50 credits, and a SO₂ credit price decrease from $200 to $184 per credit. What tax on SO₂ would the United States need to set if they wanted to achieve the same level of SO₂ emissions reductions as those under the new equilibrium for the Acid Rain Program? (2pts) | Provide a brief explanation for why you obtained your answer in (1b). (2pts) Why is the permit trading program in (la) preferable over command-and-control policies (to economists) if both policies attempt to regulate the total amount of SO₂ emissions? Assume command-and-control policies set allowable SO₂ emissions for each firm to be equal, and the total number of SO₂ emissions are the same for both policies. Explain. (2pts)