Microeconomics · free preview
Pricing the Damage
A Pigouvian tax equal to the marginal external cost restores the efficient quantity, tradable permits create the price directly, and the choice among instruments turns on information, monitoring and politics.
1. The tax that tells the truth
The tax that tells the truth
2. Permits, the price from a quantity
Permits, the price from a quantity
3. Command's weakness
Command's weakness
4. The repair's own costs
The repair's own costs
5. The Pigouvian level
Each unit of sugar causes 10 dollars of external damage, and the efficient quantity is 60 units while the private market produces 72. What tax per unit restores efficiency?
6. Tax versus cap
A regulator can set a 10 dollar per-unit pollution tax or issue tradable permits for the efficient quantity. Under standard assumptions, how do the outcomes compare?
7. The permit price
In a cap-and-trade market the regulator caps pollution at the efficient quantity, and at that quantity the marginal abatement cost for refineries is 10 dollars per unit. What permit price does trading settle at, in dollars, and write the number.
8. The truth-telling tax
Each unit of sugar causes 10 dollars of external damage. Why does a 10 dollar per-unit pollution tax restore efficiency?
9. Two instruments, two anchors
What is the key contrast between a pollution tax and a tradable permit cap at the efficient quantity?
10. Tax revenue at the optimum
A 8 dollar per-unit pollution tax brings a market to its efficient quantity of 54 units. Compute the government's revenue in dollars, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free