1. Production of widgets results in emissionsof a harmful pollutant, at a rate of 1 ton ofpollution per widget produced. The marginalcost of producing widgets is $4 per widget.The demand curve for widgets is 9 - Q, whereQ is the quantity of widgets. The widgetmarket is competitive, such that bothconsumers and producers are price takers.The government is considering policies toaddress this negative externality.a. The first policy being considered is atechnology standard. The abatementtechonol- ogy being required costs $2 perwidget. What is the social cost of this policy?b. The marginal damages of the pollutant areconstant and valued at $1 per ton. What arethe social benefits of the technologystandard?c. Would the technology standard representan improvement in economic efficiency forsociety? Why or why not?d. Now assume that the policy makerimposes a Pigouvian tax on the emissions ofthe pollutant. What are the social benefits ofthis policy?e. What are the net benefits of the Pigouviantax assuming all tax revenue is trans- feredback to households lump sum?

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1. Production of widgets results in emissions of a harmful pollutant, at a rate of 1 ton of pollution per widget produced. The marginal cost of producing widgets is $4 per widget. The demand curve for widgets is 9 - Q, where Q is the quantity of widgets. The widget market is competitive, such that both consumers and producers are price takers. The government is considering policies to address this negative externality.

1. Production of widgets results in emissions of a harmful pollutant, at a rate of 1 ton of pollution per widget produced. The marginal cost of producing widgets is $4 per widget. The demand curve for widgets is 9 - Q, where Q is the quantity of widgets. The widget market is competitive, such that both consumers and producers are price takers. The government is considering policies to address this negative externality.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 5PA

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