The following companies all manufacture widgets and dump tons of glop into the air. Costs to clean up 1 ton of glop Current contribution to overall pollution Manufacturer Polluters-r-us Smog brothers inc $70 $100 $30 200 200 Really dirty industries The government wants to halve total pollution but does not know how much it will cost each company. Determine the total cost of the cleanup if the government employs a tradable permit scheme in which it gives the same amount of permits to each manufacturer at no cost. 200

The following companies all manufacture widgets and dump tons of glop into the air. Costs to clean up 1 ton of glop Current contribution to overall pollution Manufacturer Polluters-r-us Smog brothers inc $70 $100 $30 200 200 Really dirty industries The government wants to halve total pollution but does not know how much it will cost each company. Determine the total cost of the cleanup if the government employs a tradable permit scheme in which it gives the same amount of permits to each manufacturer at no cost. 200

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 9SCQ: The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the...

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As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?
Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwoods forest and grow com, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between T and R, decide which one is better. Why? In the choice between T and S, can you say which one is better, and why? If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
Is zero pollution an optimal goal? Way or why not?
From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
In the Land of Purity, there is only one form of pollution, called gunk. Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between K and L, can you say which one is better and why? In the choice between K. and N, can you say which one is better, and why? If you had to guess, which choice would you think is move likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?
What is an externality?
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.