6. Comparing policies toward pollution Aa Aa Suppose there are two chemical plan

Question

6. Comparing policies toward pollution Aa Aa Suppose there are two chemical plants that produce kitchen and bathroom cleaners. Through the production process the plants release toxins into the ocean, polluting the water and killing marine life nearby. The following graph shows the marginal benefit (demand) curves for each plant (Plant A and Plant B). Because there is no marginal external benefit from polluting, marginal benefit to consumers equals marginal social benefit. The marginal cost of reducing the amount of pollution for Plant A is more than the marginal cost of reducing the amount of pollution for Plant B. MB IDollars per ton 200 180 MB [Plant A] 160 140 120 00 MBIPlant B 80 60 40 20 Optimal Tax/Poll. 0 40 80 120 160 200 240 280 320 360 400 POLLUTION (Tons of toxins per dayl Help Clear All Without government intervention, each plant will emit tons of toxins per day.

Explanation / Answer

From the diagram each plant will emit 360 tons of toxin per day.

If the socially optimum quantity of pollution is 360 tons of toxin per day, which of the following policies leads to the socially optimum quantity of released toxins in an efficient manner?

Alternative E is correct as it refers to environmental standard of cutting the emission to half.

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