a. Consider a competitive market supple and demand model. If there are no externalities, explain why economists describe the competitive equilibrium an efficient?
b. Suppose instead that all of the firms in this market vent an ozone reducing chemical into the atmosphere as a consequence of their production activities. Is this new outcome efficient? explain with a diagram
c. Do these firms have an incentive to reduce their pollution? Explain with diagram.
d. Modern economists suggest 2 solutions to the pollution problem above. Explain how a pollution tax (use diagram) and an emission permit trading scheme can both "solve" the problem of pollution.