Read the transcript below and answer the questions:

The Texas Railroad Commission voted Tuesday to renew the operating permit for an oil and gas waste facility that locals say is polluting the community's air. Blackhorn Environmental Services' Orange Grove disposal facility about 40 miles northwest of Corpus Christi accepts waste from oil and gas production like fluids used in hydraulic fracturing and sediments that settle in the bottom of storage tanks. It has been a source of frustration for locals ever since it began operating two years ago. They've filed complaints about foul smells in the air, nausea and headaches that they said they hadn't experience before the facility opened.

Those complaints were acknowledged during Tuesday's Railroad Commission hearing on whether to renew the facility's operating permit for another five years. Local landowners protested the renewal primarily because of air pollution they say is coming from the facility. But Austin Gaskamp, a technical examiner for the Railroad Commission, said during the hearing that the agency doesn't deal with complaints about the air.

"The concerns about odor and air quality are not within the jurisdiction of the Railroad Commission," Gaskamp said.

A different state agency is responsible for regulating air quality: the Texas Commission on Environmental Quality. The TCEQ has received over 200 complaints related to the Blackhorn site in the two years it's been operational. TCEQ staff have confirmed that they are actively investigating air emissions coming from the facility.

Gaskamp also noted that there was no evidence the facility had accepted waste it wasn't supposed to, or that it had emitted hydrogen sulfide - a toxic gas that's known to come from oil and gas waste. Local landowners have reported smelling the "rotten egg" odor that characterizes hydrogen sulfide.

Railroad Commissioner Jim Wright, who lives near the Blackhorn site, said he was "sympathetic" to the concerns of nearby residents.

"The Railroad Commission will continue to monitor the situation to ensure that the facility remains compliant with all permit requirements," Wright said.

That was little consolation to the protestors, though.

"I'm just very disappointed," said Jennifer Green, whose family shares a fence line with Blackhorn. "My heart is kinda broken."

Although the TCEQ is still investigating Blackhorn, Green has been disappointed with the regulatory response overall.

The Railroad Commission did recently issue violations to Blackhorn, but they didn't have anything to do with the waste itself. The commission asked the company to build a bigger fence around its site and to add more details to quarterly reports it submits about the waste it receives.

"Someone needs to be accountable," Green said. "Everyone's passing the ball back and forth, and I'm done playing this game."

a. Use supply and demand analysis to illustrate the difference between the free market equilibrium for waste disposal services and the socially optimal equilibrium. Fully label and provide an explanation of the model.

b. Discuss the difference between using taxes and regulations to reduce pollution. Which do you think might be more effective, and why?

c. Regulations sometimes lead to unintended consequences. What might be some unintended consequences of regulations aimed at improving air quality?