Question

Problems and applications q7 for any given demand curve for the right to pollute, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits. suppose there is a sharp improvement in the technology for controlling pollution. illustrate the effect of this development on the demand for pollution rights. demand price of pollution quantity of pollution d 1 d 2 suppose the corrective tax policy and the number of pollution permits available do not change in spite of this demand shift. as a result of the technology change, the price of pollution with a corrective tax will bethe same as the price of pollution with pollution permits, and the quantity of pollution with a corrective tax will belower than the quantity of pollution with pollution permits.

Answer 1

We answer this question by bringing about the following supposition:
The corrective tax policy and the number of pollution permits available do not change in spite of this demand shift.

Answer 2

Demand curve would move inside (to the left) because now expertise are offered that diminishes pollution so companies will request fewer pollution privileges.

With same amount of pollution authorizations with the remedial tax, the price of effluence with a remedial tax would not change and would be same as the value of pollution with licenses. Amount of pollution with a remedial tax drops so it is lower than the amount of pollution without licenses.