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There are three industrial firms in Happy Valley. Initial Cost of Reducing Firm
Chapter 10, Problem Problems and Applications 10.11(choose chapter or problem)
There are three industrial firms in Happy Valley. Initial Cost of Reducing Firm Pollution Level Pollution by 1 Unit A 70 units $20 B 80 units $25 C 50 units $10 The government wants to reduce pollution to 120 units, so it gives each firm 40 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?
Questions & Answers
QUESTION:
There are three industrial firms in Happy Valley. Initial Cost of Reducing Firm Pollution Level Pollution by 1 Unit A 70 units $20 B 80 units $25 C 50 units $10 The government wants to reduce pollution to 120 units, so it gives each firm 40 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?
ANSWER:Step 1 of 3
Public welfare describes that the economic situation that involves negative externality can be handled through tradable pollution permits. Tradable pollution permits are bought and sold because a needy firm buys them from the selling firm. Thus, these permits help to increase efficiency in society.