About Microeconomic Question.?

by admin on 17. Sep, 2011 in Forex

Question by Nazli Amir: About Microeconomic Question.?
Kyoto attempts to reduce the likelihood of global warming from excessive greenhouse gas emissions. Under the Kyoto Protocol, many developed countries (such as Russia, the United Kingdom, and Japan) made specific commitments to reduce carbon dioxide emissions. The Protocol refers to these countries as Annex I countries.

Under the emissions trading program described in the NPR story, each Annex I country receives emissions permits, or credits, to distribute to carbon-emitting firms in its economy. Each credit allows the holder to emit 1 ton of carbon dioxide during the year. If, at the end of the year, a firm has emitted more pollution than its credits allow, it pays a large fine. If a firm needs to emit more pollution than its permits allow, the firm can buy the additional credits it needs from a firm that does not need all of its pollution credits.

The following questions ask you to evaluate this “cap-and-trade” program.

Suppose the Annex I countries currently emit 6 billion tons of carbon dioxide per year. The countries agree to “cap” global carbon dioxide emissions at 3 billion tons over the next year. To do so, they distribute 3 billion carbon credits among the Annex I countries.

The graph below represents the market for carbon credits in Annex I countries. The downward sloping blue line represents the demand for carbon credits. One credit gives the holder the right to emit 1 ton of carbon dioxide, so the total number of credits in circulation equals the total amount of pollution.

The vertical orange line represents the fixed supply of carbon credits per year. Only the government can create new credits or reduce the number of existing credits. Even firms that already hold credits pay a “price” to pollute. The opportunity cost of using credits is what the firm could have sold its credits for in the market. For simplicity, assume the credit prices are denominated in euros, the currency of the European Union.

According to the NPR story, Forrister often works with cement and steel companies because they use carbon-intensive production processes. Suppose economic growth in China increases the global demand for cement and steel. Shift one or both of the curves below to show how the increase in the demand for cement and steel impacts the market for carbon credits.
I think that only the supply curve will shift rightward..
help me please..

Best answer:

Answer by MONDAY..!!!
Economics

http://www.shmoop.com/economics/

http://www.sparknotes.com/economics/

http://www.pinkmonkey.com/studyguides/subjects/eco/contents.asp