4) Createa generic supply and demand graph to illustrate how a cap and trade program works (note, this is now the pollution permit market ... not the gasoline market - do not mix up the two markets!). Show what happens if the cap is lowered over time. explain the graphs that I provide.

[3 permit supply: fully inelastic Pal inelastic demand plum\"... i demand shift supplyfixed q1 = q2 Title n. S = Supply of tradeable permits Price ($) The supply of permits is perfectly elastic and P2 fixed at this quantity by the government P14 - - - D2 D1 Q1 CO2 permits Explanations Figure 10: Tradeable permitsGraph Title Permit supply: Fully inelastic P2i Inelastic demand Unitary demand Demand shift Explanation