The Table Below Shows the Demand for Pollution Permits to Emit

question 102

Essay

The table below shows the demand for pollution permits to emit hydrocarbons in a particular industrial park which are sold by the government. Each permit allows the owner to release 1 tonne of pollutants into the atmosphere. $$\begin{array} { c c } \hline \text { Price per Pollution Permit } & \text { Quantity of Permits } \\\hline \$ 10 & 2000 \\9 & 2500 \\8 & 3000 \\7 & 3500 \\6 & 4000 \\5 & 4500 \\4 & 5000 \\\hline\end{array}$$ a) If no fee for a pollution permit were charged, and assuming a straight-line demand curve, what quantity of pollutants would be discharged into the atmosphere?
b) Suppose government were to set a fee of $6 per permit. What quantity of pollutants would now be dumped and what would be the revenue of government.
c) Suppose that new technology allows for a significant reduction in hydrocarbons at a relatively low cost so that the demand for permits drops by 500 tonnes. Assuming that government holds the permit fee at $6, what quantity of pollutants would now be dumped, and what would be the total revenue received by government?
d) After the change of demand in c), what would happen if instead of maintaining the fee at $6, government wants to maintain the same level of pollutants as in b). What fee would have to be charged and what would be the new revenue?

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Probability Model

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