In the assigned reading "Markets for Pollution Allowances: What are the (New) Lessons?",

a. Goulder discusses permit price volatility in the cap-and-trade program;

i. What role does elasticity of supply play in the volatility of permit prices? Explain with the help of a diagram if needed.

ii. What has caused the price volatility in the RECLAIM program in the summer of 2000?

iii. Why is price volatility a problem?

iv. What are some measures that can be implemented to avoid price volatility?

b. Goulder discusses the rationale for subsidizing research and development directly. Briefly explain.

https://web.stanford.edu/~goulder/Papers/Published%20Papers/Goulder-Parry%20Instrument%20Choice%20(REEP)%20Paper%20-%20Final.pdf