Answer:
Step-by-step explanation:
Sure, I can help you with that. Here are the answers to your questions:
Which polluter will buy from which?
Polluter 1 will buy permits from Polluter 2. This is because Polluter 1's marginal abatement cost (MAC) is higher than Polluter 2's MAC. This means that Polluter 1 is willing to pay more for permits than Polluter 2.
What will be the ending distribution of permits after trading occurs?
Polluter 1 will end up with 50 permits, and Polluter 2 will end up with 100 permits. This is because Polluter 1 will buy 50 permits from Polluter 2.
What will be the resulting allocation of abatement responsibility?
Polluter 1 will abate 50 units, and Polluter 2 will abate 150 units. This is because Polluter 1 has 50 permits, and each permit allows for one unit of abatement. Polluter 2 has 100 permits, and so it will abate 150 units.
Here are the steps to solve this problem:
Calculate the marginal abatement cost for each polluter:
Polluter 1: MAC1 = 2a1 = 2 * 50 = 100
Polluter 2: MAC2 = 1/2a2 = 1/2 * 100 = 50
Determine how many permits each polluter will buy:
Polluter 1: Permits bought = (MAC2 - MAC1) * Number of permits = (50 - 100) * 25 = -50
Polluter 2: Permits sold = -50
Calculate the ending distribution of permits for each polluter:
Polluter 1: Permits ending = Initial permits + Permits bought = 25 + (-50) = 50
Polluter 2: Permits ending = Initial permits - Permits sold = 25 - (-50) = 100
Calculate the resulting allocation of abatement responsibility for each polluter:
Polluter 1: Abatement = Permits ending / Number of permits per unit = 50 / 1 = 50
Polluter 2: Abatement = Permits ending / Number of permits per unit = 100 / 1 = 100