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Business, 12.10.2021 05:10 oomale

Suppose the government has determined that the socially optimal quantity of sulfur dioxide emissions is 175 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $ per ton of sulfur dioxide emitted will achieve the desired level of pollution. Now suppose the U. S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of sulfur dioxide per day. To achieve the socially optimal quantity of pollution, the government auctions off 175 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $ .

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