Research and Development to Reduce MAC
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Research and Development to Reduce MAC
Consider an emission tax and an emission standard as regulatory policies.
- Which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC? Assume the policy (that is, the tax rate or the standard), cannot be changed once the innovation has occurred. Illustrate your answer using any relevant diagrams.
- Now suppose the policy (that is, the tax rate or the standard), can be changed optimally by the government once the innovation has occurred. Show the optimal tax rates and emission standards before and after the innovation on your diagrams. Under this new assumption, which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC
- Suppose that there are 3 sources of emissions in the economy. The marginal abatement cost of each source is given by MAC = 20 – E. Suppose MD = 20 E.
- Write down the equation for the aggregate MAC. Show your working.
- Draw a diagram depicting the aggregate MAC and the MD curves.
- Calculate the socially efficient emission level, E*. Label E* on the diagram you drew in part (b).
- Consider an emission tax. Calculate the tax rate, T*, that must be imposed to achieve the socially efficient level of emissions, E*.
- Consider an aggregate emission standard set at E*. Calculate the amount that each source should emit in order for the aggregate standard of E* to be implemented in the most cost-effective manner possible
Consider a case where the policy-maker estimates the aggregate MAC curve to be given by MACE = 7-5E, when the true aggregate MAC curve is given by MACT = 9-5E. The policy-maker observes the true MD curve for society which is given by MD = E.
- Draw a diagram showing the MD curve, MACE and MACT. Clearly label on the diagram the emission level that the policy-maker estimates to be socially efficient, E1, and the emission level that is truly efficient, E*.
- Which policy, an emission tax or an emission standard, leads to a lower deadweight loss? Explain your answer using the diagram you drew in part (a).
Suppose for a public good, there are 5 consumers each with marginal willingness to pay
given by MWTP=1-2Q. The marginal social cost is given by MSC=5Q.
- Compute the socially optimal output level.
- Briefly describe two characteristics of public goods. Explain why the socially
optimal output level of a public good may not be produced by the market.
Consider the following table, where x is an unknown dollar amount.
Project 1
Benefit ($) Cost ($)
Year 0 100 x
Year 1 70 50
Year 2 80 50
- Suppose the discount rate is given by r=2%. Suppose that the net present value
(that is the present value of the benefits less costs) of Project 1 is 25. What is the
value of x?
- Suppose the discount rate is given by r>2%. Suppose that the net present value
(that is the present value of the benefits less costs) of Project 1 is 25. Is the value of
x greater than or smaller than that in (a) above?
Suppose there are only two polluting firms, called A and B, with the following marginal
abatement costs: 160 2 A A MAC = ? e and 100 B B MAC = ? e , where A e represents firm A’s
emissions in tons and B e represents firm B’s emissions in tons. Suppose the government
wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a
Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1
ton, and that the market for permits is perfectly competitive.
- Suppose the government initially distributes the total number of TEPs it issues
equally between the two firms. The permits are distributed free of charge. Once
trade in permits takes place, what will be the equilibrium in the market for TEPs
(i.e. which firm will buy how many TEPs from the other, and at what price)?
- Briefly describe three problems of setting up a TEP market.
- Which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC? Assume the policy (that is, the tax rate or the standard), cannot be changed once the innovation has occurred. Illustrate your answer using any relevant diagrams.
- Now suppose the policy (that is, the tax rate or the standard), can be changed optimally by the government once the innovation has occurred. Show the optimal tax rates and emission standards before and after the innovation on your diagrams. Under this new assumption, which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC
RUBRIC
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