Explain the following. a. Why an emissions tax smaller than or greater than the marginal social cost

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Explain the following.

a. Why an emissions tax smaller than or greater than the marginal social cost at QOPT leads to a smaller total surplus compared to the total surplus generated if the emissions tax had been set optimally

b. Why a system of tradable emissions permits that sets the total quantity of allowable pollution higher or lower than QOPT leads to a smaller total surplus compared to the total surplus generated if the number of permits had been set optimally

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Essentials Of Economics

ISBN: 9781429278508

3rd Edition

Authors: Paul Krugman, Robin Wells, Kathryn Graddy

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