Policy Instruments Theory

In the emissions tax graph, which area represents the firm's tax payment?

Area A — the rectangle under the tax line (t = 2) from abatement level a(t) to 50 units (i.e., the emissions).

In the emissions tax graph, which area represents the firm's The firm’s total abatement cost

Area B- the triangle under the marginal abatement cost curve (MC1(a)) from 0 to the chosen abatement level (a = 33.333).

In an abatement subsidy graph, which area represents the total subsidy revenue received by the firm?

Area C — the triangle under the subsidy line (s = 2) from 0 to the firm’s abatement level (a = 33.333).

In an abatement subsidy graph, which area represents the firm’s total abatement cost?

Area B- the triangle under the marginal abatement cost (MAC) curve from 0 to a = 33.333.

What comparison can be made between taxes and subsidies

Short run- taxes and subsidies same aggregate abatement, long run- may result in more emissions as firms attracted to the industry