There are three industrial firms in Happy Valley.FirmInitial PollutionLevelCost of ReducingPollution by 1 UnitA 30 units $20B 40 units $30C 20 units $10The government wants to reduce pollution to 60 units,so it gives each firm 20 tradable pollution permits.a. Who sells permits and how many do they sell?Who buys permits and how many do they buy?Briefly explain why the sellers and buyers are eachwilling to do so. What is the total cost of pollutionreduction in this situation?b. How much higher would the costs of pollutionreduction be if the permits could not be traded?
There are three industrial firms in Happy Valley.FirmInitial PollutionLevelCost of ReducingPollution by 1 UnitA 30 units $20B 40 units $30C 20 units $10The government wants to reduce pollution to 60 units,so it gives each firm 20 tradable pollution permits.a. Who sells permits and how many do they sell?Who buys permits and how many do they buy?Briefly explain why the sellers and buyers are eachwilling to do so. What is the total cost of pollutionreduction in this situation?b. How much higher would the costs of pollutionreduction be if the permits could not be traded?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 9PA
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Question
There are three industrial firms in Happy Valley.
Firm
Initial Pollution
Level
Cost of Reducing
Pollution by 1 Unit
A 30 units $20
B 40 units $30
C 20 units $10
The government wants to reduce pollution to 60 units,
so it gives each firm 20 tradable pollution permits.
a. Who sells permits and how many do they sell?
Who buys permits and how many do they buy?
Briefly explain why the sellers and buyers are each
willing to do so. What is the total cost of pollution
reduction in this situation?
b. How much higher would the costs of pollution
reduction be if the permits could not be traded?
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