Question: Figure 5.11 demonstrates the efficiency implications of using cap-and-trade versus an emissions fee when costs am higher than expected and marginal social benefits are inelastic. Figure 5.12 does the same thing under the assumption of elastic marginal social benefits. Now consider the case where marginal costs turn out to be lower than anticipated. For both capandtrade and an emissions fee, show whether there is too much or too little emissions reduction. Which approach is more efficient when marginal social benefits are inelastic and when they are elastic?
