Explain which policy would be better for consumers

Reference no: EM13236737

Industry X is perfectly competitive and each firm produces output with a technology Q = C ½ L ½, where C is coal and L is labor. The demand for industry X's output is Q = 10,000 - 2P, and the firms in industry X can purchase coal at a cost of $10 per unit and labor at a cost of $10 per unit. Using coal, however, will cause $5.00 of pollution damage per unit used, so the government is considering imposing a $5.00 tax on the use of coal or a $5.00 tax on the purchase of good X. Which policy would be better for consumers? Which would reduce coal use more?

Reference no: EM13236737

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