Regulation Versus Tradable PermitsDetermine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might needto get information from previous tasks to complete this table.)Total Cost of Eliminating Six Units of Pollution(Dollars)Proposed MethodRegulationTradable PermitsIn this case, you can conclude that eliminating pollution isregulates each firm to eliminate a certain amount of pollution.costly to society when the government distributes tradable permits than when it Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution inthe area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following twomethods:Methods to Reduce Pollution1. The government imposes pollution standards using regulation.2. The government issues tradable pollution permits.The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the costfaced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) isprohibitively expensive for all three firms.FirmFirm AFirm BFirm CFirst Unit of Pollution(Dollars)8055075Cost of Eliminating the...Second Unit of Pollution Third Unit of Pollution(Dollars)2101,075130(Dollars)13070090Next, suppose that two government officials proposed alternative plans that would reduce pollution by 6 units.

Two methods of pollution control measures are taken into consideration :1) Government regulation2)…

Regulation Versus Tradable Permits Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need to get information from previous tasks to complete this table.) Total Cost of Eliminating Six Units of Pollution (Dollars) Proposed Method Regulation Tradable Permits In this case, you can conclude that eliminating pollution is ▼costly to society when the government distributes tradable permits than when it regulates each firm to eliminate a certain amount of pollution.

Regulation Versus Tradable Permits Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need to get information from previous tasks to complete this table.) Total Cost of Eliminating Six Units of Pollution (Dollars) Proposed Method Regulation Tradable Permits In this case, you can conclude that eliminating pollution is ▼costly to society when the government distributes tradable permits than when it regulates each firm to eliminate a certain amount of pollution.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 10PA

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Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
Complete the following table with the action each firm will take at this permit price, the amount of pollution each firm will eliminate, and the amount it costs each firm to reduce pollution to the necessary level. If a firm is willing to buy two permits, assume that it buys one permit from each of the other firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.) Firm Firm A Firm B Firm C Initial Pollution Permit Allocation (Units of pollution) 2 2 2 Regulation Versus Tradable Permits Proposed Method Regulation Action Tradable Permits Final Amount of Pollution Eliminated (Units of pollution) Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need to get information from previous tasks to complete this table.) Total Cost of Eliminating Six Units of Pollution (Dollars) 00 Cost of Pollution Reduction (Dollars) In this case, you can conclude that eliminating…
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Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution Firm (Dollars) (Dollars) (Dollars) Firm X 130 165 220 Firm Y 90 115 140 Firm z 600 750 1,200 Now,…
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