Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 13

Figure 4 shows that for any given demand curve for the right to pollute, the government ca: achieve the same outcome either by setting price with a corrective tax or by setting a quantity with pollution permits. Suppose there is sharp improvement in the technology for trolling pollution.
a. Using graphs similar to those in Figure 1 illustrate the effect of this development o the demand for pollution rights.
b. What is the effect on the price and quantity pollution under each regulatory system Explain.