1. Climate change is caused the emissions of carbon dioxide and methane gases, i.e., so- called 'greenhouse gases.' Suppose that the United States proposes a policy to combat these emissions to reduce the effects of global climate change. The policy proposes that the U.S. would impose a pollution tax on polluting firms to reduce their carbon dioxide and methane emissions by 30% over the next ten years. Carefully discuss this proposed policy from the perspective of: a. Efficiency. What is required for the policy to be efficient? b. Cost-effectiveness. Is this policy necessarily cost-effective? What is required for the policy to be cost-effective? Is it possible for a policy to be cost-effective, but not efficient? Explain. C.

1. Climate change is caused the emissions of carbon dioxide and methane gases, i.e., so- called 'greenhouse gases.' Suppose that the United States proposes a policy to combat these emissions to reduce the effects of global climate change. The policy proposes that the U.S. would impose a pollution tax on polluting firms to reduce their carbon dioxide and methane emissions by 30% over the next ten years. Carefully discuss this proposed policy from the perspective of: a. Efficiency. What is required for the policy to be efficient? b. Cost-effectiveness. Is this policy necessarily cost-effective? What is required for the policy to be cost-effective? Is it possible for a policy to be cost-effective, but not efficient? Explain. C.

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 13SCQ: A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals...

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Classify the following pollution-control policies as command-and-control or market incentive based. A state emissions tax on the quantity of carbon emitted by each firm. The federal government requires domestic auto companies to improve car emissions by 2020. The EPA sets national standards for water quality. A city sells permits to films that allow them to emit a specified quantity of pollution. The federal government pays fishermen to preserve salmon.
Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermined technologies. In the second approach, the U.S. government determines which technologies are cleaner and subsidizes their use. Of the two approaches, which is the command-and-control policy?
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?
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?
Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.
1. Consider an emission tax and an emission standard as regulatory policies. a. Which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC? Assume the policy (that is, the tax rate or the standard), cannot be changed once the innovation has occurred. Illustrate your answer using any relevant diagrams. b. Now suppose the policy (that is, the tax rate or the standard), can be changed optimally by the government once the innovation has occurred. Show the optimal tax rates and emission standards before and after the innovation on your diagrams. Under this new assumption, which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC?
Chapter 8 in Tietenberg and Lewis looks at climate change, the most important environmental issue of our time. Economists generally agree that putting a price on carbon is the best approach to reducing climate warming carbon emissions. The two main strategies for doing this are carbon taxes and the cap and trade version of emissions trading. Discuss the pros and cons to these two approaches to pricing carbon. Why do economists favor these kinds of market-based strategies to pollution control over “command and control” approaches such technology standards?
d. What is the emissions tax that needs to be imposed to achieve the social optimum? Add this to your graph. e. What is the economic incidence of this emissions tax? In other words, what proportion of this tax will be paid by producers of this product and what proportion of the tax will be paid by consumers?
4. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market quantity of cars is not equal to the efficient quantity. The following graph shows the private demand for cars, the private supply of cars, and the social supply of cars, which incorporates both private costs and external costs. Use the black point (plus symbol) to indicate the market quantity. Next, use the purple point (diamond symbol) to indicate the socially optimum quantity. Note: Drop lines will extend to both axes automatically. DERIVATE QUARKET O5OCIAL SSOCIAL SPRVATE QUANTITY OF CARS From society's standpoint, the market is producing cars. This is an example of of resources. PRICE OF CARS
19. This next question will require you to draw on what you have learned about supply and demand and taxes. A study finds that leaf blowers make too much noise; therefore it is considered a externality, so the government imposes a $10 tax on the sale of every unit to correct for the social cost of the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Leaves are Us Manufacturing regularly sold blowers for $100 and market quantity is 300. Draw the supply and demand curve for leaf blowers. Label the axes, the curves, market price, market quantity, and equilibrium. Which curve represents private or internal costs? represents external and private costs? This is also known as What is the private market price? What is the private market quantity? Which curve costs. After the tax is in place, the consumer price of leaf blowers rises to $105. With this change in price, the number of leaf blowers will (decrease/increase). Why will this happen?
8. Assume there are two firms in an industry that generate a nasty pollutant. The government wants to limit the nasty pollutant by implementing either an environmental standard or an emissions tax. Using the graph below, answer the following questions: a. How many tons of pollutant are emitted in the absence of government intervention? b. How many tons of pollutant are emitted when the government sets an environmental standard of 4 tons per firm? c. How many tons of pollutant are emitted when the government charges a tax of $250/ton? d. What is the loss in "consumer surplus" (to firms) under the environmental standard? e. What is the loss in "consumer surplus" (to firms) under the tax? f. What is government revenue under the environmental standard? g. What is government revenue under the tax? Marginal benefit 500 400 300 200 100 Environmental standard Firm A Firm B environmental standard = 4 tons/firm 4 5 Marginal benefit 500 10 Tons emissions 400 300 200 100 Emissions tax 2.5 Firm A…
1. If you were to graph a measure of pollution on one axis and a level of economic activity (such as the real gross domestic product per person) on the other, what type of relationship do you think you would find? How would you explain this relationship? 2. Think of an externality that arises in a college dorm. What market can you think of that would (or could) eliminate any inefficiencies from that externality?