at the possible cost.
b. Suppose three firms in an industry are reducing their
emissions of nitrous oxide as a result of direct regulatory
controls. The MC of abatement for Firm 1 is $2.00/unit,
for Firm 2 it is $2.50/unit, and for Firm 3 it is $3.00/unit.
The total cost of abatement is being minimized.
This situation is productively efficient.
c. Emissions taxes can lead to efficient (lowest-cost)
pollution abatement because firms will reduce pollution
until the cost of abatement is across all
firms.
d. A cap-and-trade system can lead to efficient (lowest-cost)
pollution abatement because firms will buy and sell
permits to pollute until the cost of abatement is
across all firms.
4. Fill in the blanks to make the following statements correct.
a. Suppose the Canadian government announced that all
homeowners must insulate their homes with R-40
insulation. As a pollution-reduction policy, this is an
example of.
b. Suppose the Canadian government announced a tax of
$2.50 per litre of home heating oil consumed. As a
pollution-reduction policy, this is an example of
c. Suppose the Canadian government distributed coupons
to all homeowners allowing them to burn specified
amounts of fossil fuels for home heating, and allowed
homeowners to buy and sell these coupons. As a
