ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Analyze the relationship between negative externalities and inefficient overproduction
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- Consider two firms with the following marginal abatement cost (MAC) functions: MAC₁ = 12 - 2E₁ MAC2 = 8 - E₂ Assume that marginal external damages (MED) from the aggregate emissions of both firms (EA = E₁ + E₂) is: MED = 0.5EA. To achieve the socially efficient level of aggregate emissions (EA*) using a per-unit subsidy to abatement, the government must set the subsidy equal to $ Please round your final answer to two decimal places if necessary.arrow_forwardDistinguish carefully between a positive externality and a negative externality. Explain your answer with an example of each. (needs to be at least 100 words )arrow_forwardIdentify a negative externalityarrow_forward
- Explain why the private provision of public goods leads to an inefficient level of public goods.arrow_forwardProvide examples of public goods or externalities that are provided successfully by market or contractual arrangements.arrow_forwardConsider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 11 - 2E_1 MAC_2 = 8.5 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per-unit tax on emissions. In principle, firms could continue to emit pollution as they were in the absence of government intervention, but by cutting back on emissions, their total compliance costs (tax payment plus total abatement costs) goes down. How much money can firms save if they reduce their emissions to E*_Agg in response to the tax? Answer:arrow_forward
- Consider the positive externality graph If firms are able to ignore the benefit to society, which of the following statements is correct? Price ($) P* P₁ Private 0 Qp Private MSC MSB Dprivate Quantity (in units)arrow_forwardConsider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 11 - 2E_1 MAC_2 = 8.5 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per unit subsidy to abatement equal to $____. Answer:arrow_forwardConsider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 24 - 2E_1 MAC_2 = 20 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = 2E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If firm 2 is initially grandfathered 5 permits, it will buy more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional permits; if it is negative, the firm sells permits. So, for example, an answer of -10 implies that the firm sells 10 permits)arrow_forward
- A positive externality arises when a third party, outside the market transaction, fails to allocate resources efficiently Pays less for the good or service benefits from a market transaction pays a pollution tax to balance social costsarrow_forwardConsider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC 1 10 - .5E_1 = MAC 2 20 E_2, = - and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the permit cap equal to Farrow_forwardThese two situations have arisen: Agricultural technologies become available that if used reduce adverse effects fromfarming on environmental quality Water from a uranium mine is leaking into Kakadu NationalPark For each case you are to identify possible external effects that might occur and explain the conditions that would need to exist, and what the government or the affected parties could do, to change these negative situations for the betterment of one or both parties?arrow_forward
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