ECON-260-Chapter11.pdf

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Example 1: a tax on the carbon emissions from vehicles. Polluters will emit as long as the tax mac, or until the tax = mac at et. tax. Polluters pay the tax bill plus the abatement costs, the total compliance costs, which is a + b. Mac = 50 - 0. 5e tax = . At e* where tax = md = mac. Standards because the total compliance costs are only tac. Q* qm q e* emax e: emax occurs when the market produces qm, e* occurs when the market produces q*. Net social benefit from a tax: if the tax is set such that emissions decrease from emax to e*, the net social gain will be. Td (benefit) tac (cost): the cost to the firm of the tax bill is not considered a cost to society - it is a transfer payment.

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