Consider the model of Section 13 2 Suppose that is initially positive but increases due to tightening emissions regulation (choose either the case or and stick to it) Trace through the changes in diagrams to show how the equilibrium changes In particular (a) How does the factor market equilibrium i...

Let us choose the case so abatement costs do not cause a reversal in the pattern of trade a The zeroprofit condition for chemicals will change It will ...

Consider the model of Section 13.2. Suppose that is initially positive but increases due to tightening

Question:

Consider the model of Section 13.2. Suppose that θ is initially positive but increases due to tightening emissions regulation (choose either the case θ < θ* or θ > θ* and stick to it). Trace through the changes in diagrams to show how the equilibrium changes. In particular:
(a) How does the factor market equilibrium in the United States (as represented by zero profit conditions) change for given output prices?
(b) How does the U.S. production possibilities frontier change?
(c) How does the U.S. relative-supply curve change?
(d) How does the world relative-supply and relative-demand diagram change? Show the original world equilibrium and the new equilibrium on the same diagram.
(e) Given the change in equilibrium world prices, how does the production point on both countries' production possibilities frontiers change?