Figure 10.5 shows that for any given demand curve for the right to pollute, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits. Suppose there is a sharp improvement in the technology for controlling pollution.

a Using graphs similar to those in Figure 10.5, illustrate the effect of this development on the demand for pollution rights.

b What is the effect on the price and quantity of pollution under each regulatory system?

Explain.