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28 Oct 2020

6. Which of the following does not apply to the use of pollution permits?

a. They can be traded in a market.

b. They can only be applied at the macro level.

c. 

d. They are designed to encourage pollution abatement.

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28 Oct 2020

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Related questions

43. In the small economy of URSS, there are two oil companies that produce a considerable amount of pollution when they dump waste products in nearby lakes and rivers. Economists have calculated the damage to citizens caused by this pollution. This can be summarized in an equation which gives the marginal benefit of cleaning up this pollution: MBA = 960 - 2A. Economists have also been calculating the total cost of cleaning up for each of these two firms. For the first company, called Oiligarch, the cost of cleanup can be summarized in the equation TC1 = 6A, . This company currently produces 120 units of pollution. For the second company, called Petrogarch, the cost of cleanup can be summarized by the equation TC2 = 2A?. This company currently produces 360 units of pollution. (a) On the diagram provided, draw the overall MBA and MCA curves for this economy. (b) Show on the diagram the ideal amount of a tax on pollution in this economy. Underneath the diagram, indicate the amount of this tax per unit of pollution emitted. (c) Show on the diagram, the ideal amount of permits that this government would issue if it decided to issue tradable pollution permits as a way of reducing pollution. Indicate the amount of pollution permits that would be issued (one for each unit of pollution permitted) in this economy. (d) If the government of the URSS compelled each of these two firms to do an equal share of the optimal amount of total pollution abatement, what would be the total cost of abatement? (e) If tradable pollution permits were issued for the optimal amount of pollution, what would be the total cost of abatement in this economy? (10 marks)

Once tradable pollution permits have been allocated to firms,

a. The government controls the price of permits.

b. The marginal benefit of additional reductions in pollution will always increase.

c. The value of pollution-saving technology will be lower than the market value of pollution permits

d. Firms that can reduce pollution only at a high cost will be willing to pay the most for pollution permits.

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?

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