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In: Economics

3. Assume that a chemical plant in your area has been dumping its toxic waste free...

3. Assume that a chemical plant in your area has been dumping its toxic waste free of charge into a local stream.
A. What is the criterion that we use to define “static economic efficiency”? Why would the market allocation not meet this economic efficiency criterion? (4)
B. Use a supply and demand (i.e., marginal benefit-marginal cost) diagram to compare the market allocation (price and quantity) with the socially optimal (i.e., statically efficient) allocation. (4)
C. How could you use a marketable permit system to solve this problem? Explain. (6)
D. How could you use Pigovian taxes to solve this problem? Explain. (6)

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Rahul Sunny answered 2 years ago
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