3". Correcting for negative externalities - Taxes versus tradable permits Nuclear facilities emit radioactive waste 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 electricity production. Suppose the U.S. government wants to correct this market failure by getting rms to internalize the cost of pollution. To do this, the government can charge rms for pollution rights {the right to emit a given quantity of radioactive waste]. The following graph shows the daily demand for pollution rights. Use the graph input topi to help you answer die following questions. You will not be graded on any changes you make to this graph. Note: lOnce you enter a value in a white eld, the graph and anyr corresponding amounts in each grey eld will change accordingly. \fSuppose the government has determined that the socially optimal quantity of radioactive waste is 360 million tons per day. One wag.r governments can charge rms for pollution rights is by imposing a per-unit tax on emissions. A tax {or price in this case] of- per ton of radioactive waste emitted will achieve the desired level of pollution. Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of radioactive waste per day. To achieve the socially optimal quantity of pollution, the government auctions off 360 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution ghts will be -. The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution [or both}. Given that the appropriate policy Etradable permits or corrective taxes) can depend on the available information and the policv goal, consider the following scenario. Suppose the government knows the optimal quantity of pollution as well as howI much it costs a particular polluting firm to reduce pollution at each quantity. If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply. Ci Tradable permits Ci Corrective taxes