Question: Write down every question number and every step. Thank you! Sulphur emissions are harmful to human health and cause acid rain. Suppose that we can

Write down every question number and every step. Thank you!

Sulphur emissions are harmful to human health and cause acid rain. Suppose that we can divide the population into two groups. Group 1 (outdoorsy people) have collective marginal damage from sulphur emissions of: MD1(e)=20e where e are the sulfur emissions. Group 2 (indoorsy people) have collective marginal damage of MD2(e)=10e Sulphur emissions are a by-product of some types of industrial activity. Suppose that the marginal savings from emissions are: MS(e)=100010e 1. Explain why this type of pollution can be considered a public bad. 2. Find the aggregate marginal damage from sulphur emissions. Draw it on a diagram, along with the marginal savings curve. Be sure to label the diagram fully. 3. What will be the level of pollution in the absence of regulation or bargaining? What is the overall loss to society as a whole from this outcome? Calculate it and show it on your diagram. 4. Suppose that the government wishes to incentivise abatement to the optimal level by offering a subsidy to firms for each unit of e abated compared to the level you calculated in part 3 . What rate of subsidy should they choose? Name at least one potential problem with this policy (and, of course, explain why it is a problem)

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