Use the tab 5 permits in the Excel file Public good HW to an

Use the tab \"5 permits in the Excel file Public good HW to answer questions on ITQs Suppose that 2 power plants and a concrete factory are polluting the air. Each is awarded Individual Transferable Quotas. Thus each factory could be a supplier of pollution permits or a demander for additional permits, based on the costs of cleanup. In class we derived the demand and supply for permits when each company was awarded 6 permits. Now calculate the market when pollution standards are raised, and each firm is awarded only 5 permits. The first step in doing this homework is to calculate who will supply permits at each possible price, and who will demand permits at each price. Then draw a supply and demand graph (or use the one in the spreadsheet) to answer the following questions. 1. Why do we add up these units of clean emissions horizontally rather than vertically i. t is more efficient in counting all three companies emissions, permits are a private good. 2. How many permits will be traded? How much will be charged for a permit? i. 3, $35 a permit 3. Which company is buying permits? i. Company C is buying the majority of the permits because it\'s the most dirty ii. Company B 1 permit, Company C2 permits, Company A no permits. 4. What is the cost to society of reducing pollution to 15 units total using ITQs? What would the cost be if each firm were allowed to emit only to five units (each had to clean up 5)? i. TC vs. No market, costs with ITQs TC cost with No market- 5. How do the supply and demand for permits shift as a result of reducing allowed pollution from 6 units to 5 units? Demand for permits would increase and the supply decrease

Solution

(1) It is more efficient to extract more details horizontally as compared to vertically.

(3) Demand of permits is more in Comapny C, that is why Comapny C is buying the major permits.

Rest of the answers are point to point. No need to elaborate much