1: In the textbook neoclassical model, is the optimal quantity of pollution generally greater than or equal to zero?

2: A2018 reporthas concluded that chronic exposure to air pollution from greenhouse-gas-emitting activities is killing an estimated 7,142 Canadians a year, and 2.1 million people worldwide. Draw a supply and demand graph for fossil fuel powered vehicles that reflects both the private and social costs of using these vehicles.Clearly label each curve, as well as the private market and socially optimal prices and quantities.

3: Describe and show on the graph how the government might intervene in the market for fossil fuel powered vehicles to achieve the socially optimal outcome.

4: Why might a government choose to tax the pollution instead of taxing the good itself?

5: What would be an alternative to taxing the pollution that could achieve an equivalent outcome?