Total greenhouse gas (GHG) emissions in Canada in 2016 were 700 megatonnes (Mt)

Question

Total greenhouse gas (GHG) emissions in Canada in 2016 were 700 megatonnes (Mt) of carbon dioxide equivalent. Assume that the MB of abating emissions are falling in abatement Q and MC of abating emissions is rising in abatement Q, but the Falsely beleived MB or MC curve is above the True curve.

Suppose the uncertainty is only over the MB of reducing GHG emissions, with MBF > MBT . Is expected DWL higher when a tax or when a quota system is used to reduce GHG emissions? Does the elasticity of the MB curve matter?

Explanation / Answer

In this case when we will go to impose any kind of tax or quota there will be dead weight loss. This DWL or the amount of DWL depend on the elasticity of the both MB or MC curve. Let suppose here we consider the elasticity of marginal benefit curve. If marginal benefit curve be more responsive or it be more elastic then the any impose of quota or tax theere will be more loss in benefit. It means if MB curve be more elastic then the loss of benefit in terms of DWL will be more. If the elasticity of the MB curve is less then the loss of benefit in terms of DWL will be less. The loss of benefit which will go as DWL due to imposition of quota and tax depend on the elasticity of the MB curve. Therefore elasticity of the MB curve matters.

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