NOTES

What does social efficiency require regarding pollution?

Social efficiency requires regulated levels of pollution, not complete eradication.

What is the socially efficient level of output (Q1)?

The level where marginal social cost equals marginal benefit, balancing environmental impact.

How does a pollution tax influence the supply curve?

A pollution tax shifts the supply curve upward, raising marginal costs for firms.

Why might firms and consumers lobby against pollution taxes?

Due to concerns over profit margins and price increases.

What are marginal external costs?

The additional costs imposed on society per unit of pollution; increases with production quantity.

What is the impact of implementing a pollution tax?

It leads to a new equilibrium price (P1) and output (Q1) that accounts for external costs.

What is Nash Equilibrium in game theory?

A stable state where no player can gain by changing their strategy if other players keep theirs unchanged.

What does the carbon tax in Canada aim to achieve?

To reduce greenhouse gas emissions by making fossil fuel use more expensive.

What happens to market efficiency with trading pollution permits?

It allows firms that can reduce pollution easily to sell their permits to those with higher reduction costs.

What is Perfect Price Discrimination?

When a firm charges every consumer their individual marginal willingness to pay, capturing all consumer surplus as producer surplus.