1. My friend smokes cigarettes and argues that there should not be a federal tax on cigarettes. He asks me “If people want to smoke cigarettes why should they have to pay any more than a person that wants to chew gum?” What economic term dealing with the costs unaccounted for in a consumer and producer transaction could be used for a tax on cigarettes and not gum?
2. The government assigns permits for SO2 pollution and allow firms to buy and sell the permits. How does the pollution permits affect SO2 pollution? What do the pollution permits correct for?