Q2A. Carbon monoxide (CO) emissions from internal combustion engines increase in colder climates. Thus, the environmental damage from CO emissions is worse in the winter months than in the summer months. Nonetheless, air quality control authorities use a standard for CO that is uniform throughout the year with no allowance for seasonal effects. The damage cost and abatement cost information is as follows: MD of CO emission in winter = 3E MD of CO emission in summer = 2E MAC of CO emission in both winter and summer= 60 - E where MD is marginal damages cost, MAC is marginal abtement costs, and E is level of emissions. a. If you were in charge of setting a policy for CO emissions, what action would you recommend to ensure an allocatively efficient outcome across the two seasons? b. Suppose that the government sets a policy that says emission level for winter and summer will be equiproportion, i.e., E = 15. Determine the change in net benefit or welfare loss associated with this policy.
