8.Now suppose country A imposes a tax T on A's production of qA to curb emissions....

8.Now suppose country A imposes a tax T on A's production of qA to curb emissions. Country B, however, is not taxed. A's cost function is now CA (qA)=46qA, while B's cost function is CB(qB)= 4qB . World demand is p=99-Q. The amount of greenhouse gas emissions per unit is still 0.5, such that total world emissions are given by 0.5Q. What are total world emissions after country A enacts a carbon tax?

This question will show how incomplete regulation can lead to "carbon leakage". Despite A reducing output (and thus emissions), total world emissions are only partially reduced, since B responds by increasing its output (and thus emissions). Estimation of carbon leakage is an active area of research in environmental economics.\

9. Consider the oil-producing countries of A, B, and C. Each has a marginal cost of zero. World demand is given by Q=674-P. Suppose the three countries form a cartel, and that none of them has an incentive to deviate from the cartel. By how many units lower is the total output of oil under the cartel relative to the Cournot solution?

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Rahul Sunny answered 1 year ago

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