Question

Use the following information about the MD-MAC model for questions 1 to 6. There is a polluter on a lake that is damaging a fishery by its pollution.
MAC = 800 – 3e where e is the level of emissions measured in tonnes
MD = 2e
1) The socially efficient level of emissions is: a. 320 b. 160 c. 640 d. 80

2) A Coase Theorem negotiation where the property rights belong to the fishery results in an offer of: a. $160 per tonne reduction in emissions paid by fishery to the polluter b. $160 per tonne of emissions paid by fishery to the polluter c. $320 per tonne of emissions paid by polluter to the fishery d. $320 per tonne reduction in emissions paid by fishery to the polluter

3) A Coase Theorem negotiation where the property rights belong to the fishery results in a maximum payment of: a. $51,200 to the fishery b. $51,200 to the polluter c. $89,600 to the fishery d. $89,600 to the polluter


4) Assume that the government sets an emissions target of 200. What is the loss or gain in efficiency relative to a socially optimal outcome? a. $4,000 loss b. $4,000 gain c. $8,000 loss d. $8,000 gain

5) The government wants to introduce a tax to reduce emissions. What is the optimal Pigovian tax? a. $160 per tonne of emissions abated b. $160 per tonne of emissions c. $320 per tonne of emissions abated d. $320 per tonne of emissions
3

6) Instead of a tax, what is the subsidy that should be paid to polluters? a. $51,200 b. $25,600 c. $17,067 d. $34,133

Answer 1