6] Suppose an environmental regulator is concerned with efficient emissions control. The regulator uses its perception about the aggregate marginal abatement cost to determine the amount of permits in the market. How many permits does the regulator issue? [7] Given your answer to Question [6], would the market permit price be higher or lower than the regulator’s prediction of the permit price? [8] Given your answer to Question [6] what area(s) represent the welfare losses resulting from the regulator’s uncertainty about aggregate marginal ab
For Questions 6 – 10, use the Figure below
[6] Suppose an environmental regulator is concerned with efficient emissions control. The regulator uses its perception about the aggregate marginal abatement cost to determine the amount of permits in the market. How many permits does the regulator issue?
[7] Given your answer to Question [6], would the market permit price be higher or lower than the regulator’s prediction of the permit price?
[8] Given your answer to Question [6] what area(s) represent the welfare losses resulting from the regulator’s uncertainty about aggregate marginal abatement costs?
[9] Suppose an environmental regulator is concerned with efficient emissions control. The regulator uses its perception about the aggregate marginal abatement cost to determine the emissions tax. What tax rate does the regulator set?
[10] Suppose there is uncertainty about firms’ marginal abatement costs. Describe the relationship between AMAC and MD in which taxes would lead to lower efficiency losses compared to permits.
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