An emission charge increases: Social marginal cost and thus induces lower output Private marginal cost and thus induces higher output Private marginal cost and thus induces lower output The difference between private and social costs
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An emission charge is a fee imposed on businesses that emit pollutants. This is a way for the government to internalize the external costs of pollution, making businesses pay for the social costs they impose on society. Show more…
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Assume that the marginal private costs of a firm producing fuel-efficient cars is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel-efficient cars is the same as the marginal social benefits. Discuss one way that the government can try to increase production and sales of fuel efficient cars to the socially desirable amount. Hint: the government is trying to affect production through costs, not benefits.
Jennifer S.
The marginal private costs and the marginal private benefits of a firm producing fuel-efficient cars is represented in the following diagram (show the equilibrium P_market, Q_market). The government would like to increase production and sales of fuel-efficient cars to Q_social. One way that the government can try to increase production of fuel-efficient cars is by making them cheaper to produce, by subsidizing their production. Show, on the same graph, the amount of subsidy needed to increase the equilibrium quantity of fuel-efficient cars to Q_social. Hint: the government is trying to affect production through costs, not benefits.
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