7. Correcting for negative externalities - Taxes versus tradablepermits
Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative
externality of paper production. Suppose the U. S. government wants to correct this market failure by getting firms to internalize the cost of pollutic
To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the
daily demand for pollution rights.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
Graph Input Tool
?
Daily Demand for Pollution Rights
90
9
81
72
Price
(Dollars per ton)
Quantity
Demanded
(Millions of tons)
450
63
54
PRICE (Dollars per ton)
45
36
27
Demand
18
9
0
0
50 100 150 200 250 300 350 400 450 500
QUANTITY (Millions of tons)
Answers: 3
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7. Correcting for negative externalities - Taxes versus tradablepermits
Paper factories emit chemic...
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