Reading : Answer in words.

Suppose there are two auto makers in Indy Valley - Tesla and Ford. Tesla is currently emitting 30 tons of SO2 and Ford is emitting 100 tons of SO2. The cost of reducing 1 ton of SO2 is $10,000 for Tesla and $50,000 for Ford. The government wants to reduce the SO2 emission level to 60 tons, so it gives each maker 30 tradable pollution permits.

(a) Which company sellsand how many does it sell? Which company buys permits and how many does it buy? Briefly explain why the seller and buyer are each willing to do so. What is the total cost of pollution reduction in this situation?

(b) How much higher would the costs of pollution reduction be if the permits could not be traded?