Smog Corporation and Grimy Corporation Emit Pollution in Their Production

question 95

Essay

Smog Corporation and Grimy Corporation emit pollution in their production processes.The local government has established a standard for the pollution levels of Smog Corporation and Grimy Corporation of 25,000 units of pollution.To ensure this level of pollution,the government has allocated 15,000 pollution permits to Smog Corporation and 10,000 pollution permits to Grimy Corporation.Smog Corporation has the following demand function for pollution emission permits:
ε_M = 15,000 - .Grimy Corporation's demand function for pollution emission permits is:
ε_G = 13,000 - .Is the government's allocation of pollution permits efficient? If the government allowed the corporations to trade permits,would the firms be motivated to trade? If so,what would be the efficient level of trading?

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Definitions:

Industrialize

The process by which a society or country transforms itself from a primarily agricultural society into one based on the manufacturing of goods and services.

Economies Interdependent

The state in which countries or regions depend on each other economically, often due to specialization and exchange of goods and services.

Globalization

The process by which businesses or other organizations develop international influence or start operating on an international scale, leading to a more interconnected and interdependent world.

Nation-States

Political entities consisting of a clearly defined territory and government that represents a sovereign entity, typically recognized by other states.