Problem_Set_2_Econ_131

Problem_Set_2_Econ_131 - Economics 131: Fall Quarter 2009...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set #2 (From lecture of October 8, 2009) A. Consider a pollution control policy that offers a polluter a subsidy of s per unit of pollution reduction from its pre-policy level, Q_m. Question 1: How much pollution will the ±rm produce if given the subsidy s for every unit less than Q_m that it does not produce? Explain. Question 2: What is the optimal or ef±cient subsidy level s*? How does s* compare to the optimal tax t*? Question 3: Since the optimal subsidy s* and the optimal tax t* both lead to the same quantity of pollution, Q*, total social surplus is maximized by either policy. Show in a graph how the total surplus is shared between the producer (the polluter) and the public (the pollutees). Assume the public receives any revenues raised by the optimal tax t*, but pay (through other taxes) for any subsidies given to the producer under the optimal subsidy s*. Question 4: Given your answer to Question 3 which policy (tax or subsidy) would be unanimously supported by both consumers and the producer under the alternative
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/09/2009 for the course ECON 131 taught by Professor Groves during the Fall '09 term at UCSD.

Page1 / 2

Problem_Set_2_Econ_131 - Economics 131: Fall Quarter 2009...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online