Calculate the elasticity of pollution demand, Microeconomics

1.  The marginal benefit (demand) curve for pollution for an industry is P=100-4*Q, where Q is emissions in tons.  The current emissions tax (price) for pollution is $40/ton.  Regulators are curious if a 10% decrease in the pollution tax will lead to a disproportionate percentage increase in emissions.  You calculate the elasticity of pollution demand and conclude (choose one): 

 a. Demand is elastic.  A reduction in the tax will lead to a disproportionately large increase in emissions. 

b. Demand is elastic.  A reduction in the tax will lead to a smaller than proportional increase in emissions.    

c. Demand is inelastic.  A reduction in the tax will lead to a disproportionately large increase in emissions. 

d. Demand is inelastic.  A reduction in the tax will lead to a smaller than proportional increase in emissions.

Posted Date: 3/22/2013 6:50:30 AM | Location : United States







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