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c i) Discuss the limitations of the Coasian approach to externalities 4cii) Discuss the strengths of the Coasian approach to externalities

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

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4c i) Discuss the limitations of the Coasian approach to externalities

4cii) Discuss the strengths of the Coasian approach to externalities

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4. Understanding different policy options to correct for negative externalities Carbon dioxide emissions have been linked to melting of sea ice. The following table lists some potential regulations targeting the amount of airborne carbon dioxide. For each policy listed, identify whether it is a command-and-control policy (regulation), tradable permit system, corrective subsidy, or corrective tax. Tradable Permit System Public Policy . The government limits total carbon-dioxide emissions by all factories to 250,000 tons per ten years. Each individual factory is given the right to emit 280 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace. Trees take carbon dioxide out of the air and convert it to oxygen, so the government funds a tree-planting initiative by offering $500 to any citizen who plants a tree. The government orders every factory to adopt a new technology, which reduces carbon-dioxide emissions into the atmosphere. The government charges…
5. The effect of external costs on the efficient level Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $245 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $245 per ton. PRICE (Dollars per ton of bolts) 700 630 560 490 420 350 280 210 140 70 0 0 O 0 1 Supply (Private Cost) X O O O Demand (Private Value) 2 3 4 5 QUANTITY (Tons of bolts) The market equilibrium quantity is 6 Social Cost 7 ? tons of bolts, but the socially optimal quantity of bolt production is tons.
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Use the following classification to determine which category each of the following goods falls into.... Please provide steps by step answer with proper explanation with final answer.....
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $135 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $135 per ton. 100 010 720 MSC 630 Supply 640 (MPC) 450 270 180 Demand (MPB) 7. QUANTITY (Tons of paper) The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a per ton of paper. PRICE (Dollars per ton of…
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3. Externalities. Consider a firm that causes pollution in a lake affecting a group of individuals. The production cost of the firm is c(q) = cq²/2, where c> 0 and q is the quantity produced by the firm, and the total cost imposed on the individuals (adding the costs suffered by each of them) is (q) = pq²/2, where > 0. (a) Suppose initially that the firm cannot bargain, trade, or otherwise compensate the individuals. Calculate the profit maximizing choice of output by the firm, the revenue of the firm, the private cost of the firm, the externality that the firm imposes over the individuals, and the total social cost. (b) Suppose now that the individuals affected by pollution in the lake own the lake, and that they organize to sell pollution permits, with a price of p, so that the firm must pay p per unit of output. Find the competitive price of pollution permits, as well as the profit max- imizing choice of output by the firm if the firm must buy pollution permits and buys them at the…
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12. Bernard and Elton are neighbors. Bernard never mows his lawn, rakes his leaves, or trims his hedges. His overgrown yard is not only an eyesore, but it is pulling down the value of Elton's house. a) How could the Coase theorem be used to remedy this negative externality? b) Does it matter whether Bernard has the right to ignore his yard or Elton has the right to force him to clean it up?
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $175 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $175 per ton. PRICE (Dollars per ton of paper) 500 450 400 350 300 250 200 150 100 50 0 0 O O 2 0 3 U 5 QUANTITY (Tons of paper) The market equilibrium quantity is O O 6 Supply (MPC) Demand (MPB) 7 MSC tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government…
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $385 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $385 per ton. PRICE (Dollars per ton of paper) 1100 990 880 770 660 550 440 330 220 110 0 0 ☐ 1 ☐ 2 3 4 5 QUANTITY (Tons of paper) O n Supply 8 (Private Cost) Demand (Private Value) 7 Social Cost (?) The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. of $ per ton
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