Econ 383: Environmental Economics Problem Set 5 1. The EPA is trying to figure out how to reduce CO2 emissions. They have calculated the marginal benefit of pollution to firms as MB estimate()=200-40s and the marginal cost of pollution to firms at MC(s)=10s a. Draw MB estimate(s) and MC(s). b. If the EPA were to use only the information below, what is their best guess as to the number of permits they should give out? Label this se* c. What is their best guess as to the tax they should use? Label this t;*. d. Turns out the EPA was wrong, the real MB(s) is MB'(s)=300-40s. Draw this on your graph. e. How many permits does the EPA wish they'd given out? Label this sz*. f. Draw the DWL from giving out s * permits when the real MB(s) is MB'(s). 1 g. If instead the EPA had used t* as the tax, how much pollution would result from the responding to t;*? Label this Swrongtas h. Draw in the DWL from using a tax system. i. Which is better in this case, prices or quantities? 2. The EPA is trying to figure out how to reduce CO2 emissions. They have calculated the marginal benefit of pollution to firms as MB estimute (S=200-10s and the marginal cost of pollution to firms at MC(s)=40s (NOTE THE SUBTLE DIFFERENCE FROM QUESTION 1!!!! IT IS ALL IN THE SLOPES!!!) a. Draw MB estimate(s) and MC(s). b. If the EPA were to use only the information below, what is their best guess as to the number of permits they should give out? Label this sa* c. What is their best guess as to the tax they should use? Label this t;*. d. Turns out the EPA was wrong, the real MB(s) is MB'(s)=300-10s. Draw this on your graph. e. How many permits does the EPA wish they'd given out? Label this sz*. f. Draw the DWL from giving out s* permits when the real MB(s) is MB'(s). g. If instead the EPA had used t;* as the tax, how much pollution would result from the responding to t;*? Label this Swroogtox h. Draw in the DWL from using a tax system. i. Which is better in this case, prices or quantities? j. Why is your answer here different than your answer in question 1? k. Propose a hybrid instrument with a permit trading system and a price floor and a price ceiling. Why is this better? Econ 383: Environmental Economics Problem Set 5 1. The EPA is trying to figure out how to reduce CO2 emissions. They have calculated the marginal benefit of pollution to firms as MB estimate()=200-40s and the marginal cost of pollution to firms at MC(s)=10s a. Draw MB estimate(s) and MC(s). b. If the EPA were to use only the information below, what is their best guess as to the number of permits they should give out? Label this se* c. What is their best guess as to the tax they should use? Label this t;*. d. Turns out the EPA was wrong, the real MB(s) is MB'(s)=300-40s. Draw this on your graph. e. How many permits does the EPA wish they'd given out? Label this sz*. f. Draw the DWL from giving out s * permits when the real MB(s) is MB'(s). 1 g. If instead the EPA had used t* as the tax, how much pollution would result from the responding to t;*? Label this Swrongtas h. Draw in the DWL from using a tax system. i. Which is better in this case, prices or quantities? 2. The EPA is trying to figure out how to reduce CO2 emissions. They have calculated the marginal benefit of pollution to firms as MB estimute (S=200-10s and the marginal cost of pollution to firms at MC(s)=40s (NOTE THE SUBTLE DIFFERENCE FROM QUESTION 1!!!! IT IS ALL IN THE SLOPES!!!) a. Draw MB estimate(s) and MC(s). b. If the EPA were to use only the information below, what is their best guess as to the number of permits they should give out? Label this sa* c. What is their best guess as to the tax they should use? Label this t;*. d. Turns out the EPA was wrong, the real MB(s) is MB'(s)=300-10s. Draw this on your graph. e. How many permits does the EPA wish they'd given out? Label this sz*. f. Draw the DWL from giving out s* permits when the real MB(s) is MB'(s). g. If instead the EPA had used t;* as the tax, how much pollution would result from the responding to t;*? Label this Swroogtox h. Draw in the DWL from using a tax system. i. Which is better in this case, prices or quantities? j. Why is your answer here different than your answer in question 1? k. Propose a hybrid instrument with a permit trading system and a price floor and a price ceiling. Why is this better