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Instituting the pollution tax

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Who gains and who loses from instituting the pollution tax? Chemical suppliers continue to earn zero profits. The government collets ($1)(8)=$8 million. Pollution is reduced from 10 million to 8 million unites for a social benefit of $2 million. Consumers suffer from the increase from p= $4 to p= $5. Their loss in consumer surplus is given by the trapezoidal area between these price lines and under the demand curve. This area is computed as ($1)(8+10)/2= $9 million. Thus, the total net benefit is 8+2-9= $1milllion.

Reference no: EM13680684

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