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##### Eco problem Set 8

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Question

Question;You have;the following information on the marginal benefit and marginal cost of;abating emissions of a given pollutant.Marginal benefit;of abating emissions, f (A) =1000-A;Marginal cost of;abating emissions, g (A) =400+9A;a);Assume that there is no policy;in place to reduce emissions (and therefore A=0). Represent graphically and;calculate the deadweight loss of the outcome.;b);Now assume that the policy in;place to reduce emission induces A=50. Represent graphically and calculate the;deadweight loss of the outcome.;c);What is the socially efficient;level of abatement?;d);Assume that the policy maker;wants to achieve the socially efficient level of abatement by setting a;standard (command and control). What is the deadweight loss associated with;this policy? Explain;e);Now assume that the policy;maker wants to achieve the socially efficient level of abatement by setting a;tax per unit of emission (i.e. a carbon tax). What is the level of the tax that;should be introduced? What is the deadweight loss associated with this policy?;Explain;Now assume that;the policy maker does not know for sure the marginal cost of abatement. Before;choosing the policy, the best estimate of the marginal cost of abatement is;g(A)=400+9A. However, after the policy has been implemented, the true marginal;cost of abatement turns out to be h(A)=400+11A.;f);Assume that the policy maker;has set a standard like in point 1d(that is thinking that the marginal cost of;abatement is g(A)=400+9A).;i.;What is the socially efficient level of;abatement if the marginal cost of abatement turns out to be h (A) =400+11A.;ii.;Is the level of abatement set by the policy;maker lower or higher than the socially efficient level of abatement? Explain.;iii.;What is the deadweight loss of;this policy if the marginal cost of abatement turns out to be h (A) =400+11A;(don?t calculate it, on graphically)?;g);Now assume that the policy;maker has set a carbon tax like in point 1e(that is thinking that the marginal;cost of abatement is g(a)=400+9a).;i.;If the marginal cost of;abatement turns out to be h(A)=400+11A, what is the level of abatement that the;policy induces?;ii.;Is this level of abatement lower or higher;than the socially efficient level of abatement? Explain;iii.;What is the deadweight loss of;this policy if the marginal cost of abatement turns out to be;h(A)=400+11A(don?t calculate it, only graphically)?

Paper#57385 | Written in 18-Jul-2015

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