Imagine you are the mayor of the village of Upton Snodsbury. There are two polluters in Upton…
Imagine you are the mayor of the village of Upton Snodsbury. There are two polluters in Upton Snodsbury: the commercial laundry and the distillery. The distillery's costs of abatement are represented by MACD= 200 – 2ED; The laundry's costs of abatement are represented by MACL = 600 – 2EL. The citizens of Upton Snodsbury have called for total emissions to be decreased by 50%. Your policy advisors have recommended that you implement a transferable permits system to get to the efficient solution. a) Calculate the level of emissions that would occur in the absence of emissions regulation and, subsequently, the total amount of permits that will be issued. (2 marks) Suppose that while you are generally nice person, your lawn bowls partner owns the distillery so you decide to give all the permits to the distillery. b) Use a clearly labeled diagram to help you explain how many permits the distillery will sell to the laundry and the equilibrium price these permits will be sold at. (3 marks) c) Explain if and how the trading of permits would be different if an equal number of permits was initially given to each of the distillery and the laundry. (2 marks) d) Explain if and why the amount of abatement undertaken by the distillery and the laundry are different. (3 marks) Apr 08 2022 10:15 AM
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