1. With reference to the transport sector, discuss the benefits and drawbacks of using two out of the following three options to correct market failure:

a. Taxation

b. Tradable permits

c. Command and control regulation

2. “Taxation is always preferable to command and control regulation.” - Discuss.

1. A market is characterised by the following conditions:

MSB = MPB = 400 - 10Q

MSC = 12Q

MPC = 2Q

Calculate each of the following, using a diagram to illustrate your answers:

(a) The free market output

(b) The socially efficient output

(c) The socially efficient price of the good

(d) The value of the negative externality caused in the market.

(e) The efficient rate of taxation to move the market equilibrium to the socially efficient equilibrium.

The authority uses command and control regulation to restrict the output in this market to 10 units.

(f) Calculate, and show on your diagram, the value of the deadweight welfare loss of this output constraint.