Draw supply-demand diagram with fixed supply of pollution


Assume that the marker for tradable emissions permits by power plants has been operating efficiently for several years. An engineering firm then invents a lower cost device for pollution abatement. What happens to the equilibrium market price of a tradable permit? Why? Draw a supply and demand diagram, with a fixed supply of pollution permits, along with your answer. Has the socially optimal amount of pollution increased or decreased? Explain. Create a graph on a spreadsheet program.

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Microeconomics: Draw supply-demand diagram with fixed supply of pollution
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