e) e. What are the net benefits of the Pigouvian tax assuming all tax revenue is trans- fered back to households lump sum?

1. Production of widgets results in emissions of a harmful pollutant, at a rate of 1 ton of pollution per widget produced. The marginal cost of producing widgets is $4 per widget. The demand curve for widgets is 9 - Q, where Q is the quantity of widgets. The widget market is competitive, such that both consumers and producers are price takers. The government is considering policies to address this negative externality. a. The first policy being considered is a technology standard. The abatement techonol- ogy being required costs $2 per widget. What is the social cost of this policy? b. The marginal damages of the pollutant are constant and valued at $1 per ton. What are the social benefits of the technology standard? c. Would the technology standard represent an improvement in economic efficiency for society? Why or why not? d. Now assume that the policy maker imposes a Pigouvian tax on the emissions of the pollutant. What are the social benefits of this policy? e. What are the net benefits of the Pigouvian tax assuming all tax revenue is trans