Question 14 The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating QO units of pollution. MCB Dellers per un L po 9₂ 91 MCA Pation Abatement Suppose a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because its total savings from abating less (areas 1+ 2+ 3) exceed the total costs of Firm A abating more (area 6). Firm B has lower costs of pollution abatement than Firm A. Firm B can buy the permits at a lower price than Firm A. its total savings from abating less (areas 1+ 2+ 3) exceed the cost of buying the permits (areas 2 + 3).
Question 14 The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating QO units of pollution. MCB Dellers per un L po 9₂ 91 MCA Pation Abatement Suppose a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because its total savings from abating less (areas 1+ 2+ 3) exceed the total costs of Firm A abating more (area 6). Firm B has lower costs of pollution abatement than Firm A. Firm B can buy the permits at a lower price than Firm A. its total savings from abating less (areas 1+ 2+ 3) exceed the cost of buying the permits (areas 2 + 3).
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 13SCQ: A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals...
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