20) A town has several factories that release 250 tons of air pollutants. The town determines that the maximum air pollution that is acceptable to them is 100 tons. They decide to make a market for pollution permits such that 1 permit buys the right to release 1 ton of air pollutant. a. Draw a graph of the demand and supply for permits b. If the permits are given away for free, how many will the factories demand? permits c. Label the market clearing price of the permits Pc d. What is the market clearing quantity of permits?

20) A town has several factories that release 250 tons of air pollutants. The town determines that the maximum air pollution that is acceptable to them is 100 tons. They decide to make a market for pollution permits such that 1 permit buys the right to release 1 ton of air pollutant. a. Draw a graph of the demand and supply for permits b. If the permits are given away for free, how many will the factories demand? permits c. Label the market clearing price of the permits Pc d. What is the market clearing quantity of permits?

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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Similar questions

The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
In the Land of Purity, there is only one form of pollution, called gunk. Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between K and L, can you say which one is better and why? In the choice between K. and N, can you say which one is better, and why? If you had to guess, which choice would you think is move likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?
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Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.