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3. Suppose that the government decides to issue tradable permits for acertain form of pollution.a) Does it matter for economic efficiency whether the governmentdistributes or auctions the permits?
b) If the government chooses to distribute the permits, does the allocationof permits among firms matter for efficiency?4. A builder proposes a skyscraper that would block sunlight to theneighboring houses. The building would have net benefits to the builder of$100,000. The neighbors, who use solar heating, would face reducedproperty values and increased heating costs, totaling $80,000.a) The law clearly states that the neighbors have the right to solar access.Is a welfare-improving exchange possible? What would the outcome be ifthis exchange occurred? (Hint: First write down the welfare of each group ifthe skyscraper was not built, and the welfare of each group if theskypscraper was built.)b) Because there is a large number of neighbors, hiring an attorney tonegotiate with all of them will be expensive: $25,000 total for theneighbors. Is a welfare-improving exchange possible?c) Compare the scenarios and outcomes in parts (a) and (b). Explain.