If the true marginal abatement cost is unknown by the regulator and if the marginal benefits of abatement are steeper (more inelastic) than the marginal abatement cost, then a price instrument (emissions tax) will create less DWL than a quantity instrument (cap and trade). true or false
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If the true marginal abatement cost is unknown by the regulator and if the marginal benefits of abatement are steeper (more inelastic) than the marginal abatement cost, then a
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- Assuming a $7 per unit tax is imposed, the net efficiency loss to the economy will be $______.Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO2 abatement standard. Further assume that the following SO2 abatement cost functions have been estimated by each country: TACUS = 500 + 1.5(AUS)2 MACUS = 3 AUS TACCAN = 1000 + 3(ACAN)2 MACCAN = 6 ACAN A. If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain. B. Assuming a trading program is enacted, find the cost savings associated with a cost-effective abatement solution? C. What must be the price of a tradeable permit to achieve the cost-effective abatement allocation?Imagine a firm with a marginal abatement cost (MAC) function equal to: MAC = 27 - 3E. The government introduces a per-unit tax on emissions equal to $6. For a profit-maximizing firm, total compliance costs (total abatement costs plus tax payment) are $____.
- Suppose that Penn Products and Teller Industries are both emitting 30 metric tons of perfluorocarbons (PFCs) into the atmosphere. Regulators wish to reduce emissions to 40 metric tons overall, and plan to achieve this with a system of tradable permits. Penn’s marginal abatement costs are given by MACP = 5eP, where eP is the number of metric tons of emissions that Penn is cutting. Thus, the cost of cleaning up the first metric ton is $5, the second ton costs $10 to clean up, and so on. Teller’s marginal abatement costs are given by MACT = 7.5eT, where eT is the number of metric tons of emissions that Teller cuts. a. The lowest-cost way to reduce emissions is found when both firms’ marginal abatement costs are equalized. Equate Penn’s and Teller’s marginal abatement costs, and solve for eP in terms of eT. For each metric ton that Teller cuts, how many tons should Penn cut? b. Because 20 metric tons are to be cut, we know that eP + eT = 20. Use your…Suppose that a firm's marginal abatement cost function with existing technologies is MAC = 16 - 2E. If the firm adopts new pollution abatement technologies, then its marginal abatement cost function will become MAC = 8 - E. If the government raises the emissions tax from $2 to $3, then the benefits of adopting the new technologies increase by $____. (Hint: recall that the benefits from adopting new technologies are simply the difference in total compliance costs.) THE ANSWER IS NOT 2 or 1.75 Might be 1.25 or 4.50Assuming a $7 per unit tax is imposed, the net efficiency loss to the economy will be $______. a) 10 b) 12 c) 14 d) 16 e) 19 f) 28 g) 36 h) 48 i) 66 j) 70 k) 84
- There are two signatures. The profit function of firm j is: Zj = Zj + AEJ - B/2 * E2J Where all parameters are positive and EJ denotes the emissions of firm j. (i) If there is no regulation, what level of emissions will each firm choose?Consider the carbon tax in British Columbia that was imposed in 2008. Suppose that the regulator evaluated aggregate emissions levels a couple of years into the program and aggregate emissions were higher than predicted. Describe a potential reason for this in terms of the regulator’s beliefs about the marginal abatement costs of the regulated firms.The marginal benefit of being able to emit a ton of sulfur dioxide emissions for two firms are given by:MBX = 1000 – ( Ex / 2 )MBY = 600 – ( Ey / 3 ) Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey.Government regulators want to reduce total sulfur dioxide emissions to a total of 1800 tons.a) If the government imposes the same standard of 900 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)? b) If the government distributed 900 tradable pollution permits (one ton each) to each firm what would be the final allocation of these permits after the firms trade them?c) What would be the total cost of abatement in this latter case?
- The main disadvantage of an emissions tax is that .... differences among firms are not incorporated into the policy firms lack the flexibility to pursue different technologies firms cannot behave in an economically-efficient manner. firms do not have the incentive to reduce pollution. the total pollution reduction from an emissions tax cannot be known for sure.For a marginal damage cost function equal to: MD = 0.8E, the marginal damage cost of the 50th unit of emissions is _______.A. Economic profit is an indication that consumers are willing to pay more for a good or service being offered. True False B. An advantage of tradable permits over emission taxes is that no knowledge of marginal abatement costs is needed to ensure that the tax rate is optimal. the regulator sets the price of permits. the regulator does not have to determine how much to reduce pollution levels. the regulator must set the optimal tax rate.