Question 3: The Clean Air Act of 1990 established control of sulfur dioxide emissions through the use of tradable permits. Tradable permits work because polluters and victims can trade the rights to pollute in a "market" where transaction costs are low. The program is quite effective in reducing emissions over traditional methods for controlling pollution such as fines and requi ring scrubbers on plants. Let's assume that each permit controls 1 unit of pollution. Only consider 1 unit increments of pollution (i.e. you cannot have one-half, one-third, one-fourth, etc. permits). Using the information in the table below, answer the following questions (15 points).
# of Permits Total benefit to Polluting Farmers Total Cost to Pollution Victims
0 0 0
1 30 10
2 55 30
3 75 60
4 90 100
5 100 150
6 105 210
A. Assume the government begins by giving all the permits to the pollution firms. What will be the efficient number of permits? Explain how the market arrives at this point. Use a diagram to illustrate your argument.
B. Assume the government begins by giving all the permits to pollution victims. What will the efficient number of permits? Explain how the market arrives at this point. Use a diagram to illustrate your argument.
C. Aside from restricting the number of permits, how else can the government influence the level of air pollution?
Question 3: The Clean Air Act of 1990 established control of sulfur dioxide emissions through the use of tradable permits. Tradable permits work because polluters and victims can trade the rights to pollute in a "market" where transaction costs are low. The program is quite effective in reducing emissions over traditional methods for controlling pollution such as fines and requi ring scrubbers on plants. Let's assume that each permit controls 1 unit of pollution. Only consider 1 unit increments of pollution (i.e. you cannot have one-half, one-third, one-fourth, etc. permits). Using the information in the table below, answer the following questions (15 points).
# of Permits Total benefit to Polluting Farmers Total Cost to Pollution Victims
0 0 0
1 30 10
2 55 30
3 75 60
4 90 100
5 100 150
6 105 210
A. Assume the government begins by giving all the permits to the pollution firms. What will be the efficient number of permits? Explain how the market arrives at this point. Use a diagram to illustrate your argument.
B. Assume the government begins by giving all the permits to pollution victims. What will the efficient number of permits? Explain how the market arrives at this point. Use a diagram to illustrate your argument.
C. Aside from restricting the number of permits, how else can the government influence the level of air pollution?
