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Discuss the merits of a proposal that the government should impose a tax on or subsidy...

Discuss the merits of a proposal that the government should impose a tax on or subsidy where non-renewable energy resources is supplied monopolistically in order to increase the social welfare

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Answer #1

The non- renewable resources are limited in the supply and these resources must be used in the most judicious manner. While the competition in the market often leads to the over exploitation of resources.

Thus here the tax would help to avert the instances over exploitation of non renewable resources. Thus the efficiency can be achieved through taxation.  

Further we have to see the level of output in the monopolistically competitive market. Firm does not operate at the minimum level of average cost , thus excess capacities remain in the economy . Under the such competition, the market tends to operate in the environmental friendly manner.

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