Exhibit 30-3 Costs of Eliminating: Firm A Firm B Firm C lat ton of pollution $ 30 $ 50 $ 600 2nd ton of pollution $ 70 $ 90 $ 700 3rd ton of pollution $125 $150 $ 900 4th ton of pollution $200 $250 $1,300 Refer to Exhibit 30-3. Suppose that Firma A, B, and C are the only polluters in the state and that each emits 4 tona of pollution into the atmosphere. To cut the level of pollution in half the govermment issues two transferable pollution permits to each firm (a cap and trade policy). What is the total cost savings to society of decreasing pollution to half its present level if firm C buys one pollution permit from fim A and one pollution permit from firm B compared to if there were a govermment mandate for each firm to cut pollution by one-half? $1,300 O $1,380 $515 O $1,025 $965

1. why marine pollution is considered a negative externality?  2. Suggest a relevant government policy that would yield an efficient outcome and carefully explain the process through which the implementation of the government policy will lead to the optimal outcome as it relates to marine pollution.  3. How will the imposition of the chosen government policy impact consumer surplus, producer surplus, and total surplus as it relates to marine pollution.

Price 24 20 16 12 1 1 I 1 I I I I 1 I 20 28 K 36 MSC MPC MSB Quantity 1. What type of externality does the graph above show? 2. Without government intervention, how much will be produced in this market? 3. Without government intervention, what price will be charged in this market? 4. If the government wants to intervene in this market to eliminate externalities, which of the following is the best choice?

Refer to Figure. Which of the following statements is correct? Price 22 24 22 81 18 16 Social cost (private cost and external cost) Supply (private cost) Demand (private value) 120 160 Quantity a. The private cost of producing the 160th unit of output is $16 b. The social cost of producing the 160th unit of output is $22. c. d. The external cost of producing the 160th unit of output is $6. All of the above are correct.

The effect of external costs on the efficient level Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of 5330 per ton. The foliowing graph shows the demand (private value) curve and the supply (private cost) curve for steel.

PRICE (Dollars per ton) 70 63 56 49 42 35 28 + 21 T 14 7 0 Demand +++ 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton) Quantity Demanded (Millions of tons) 7 360 Suppose the government has determined that the socially optimal quantity of particulate matter is 120 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $ of particulate matter emitted will achieve the desired level of pollution. ? per ton Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of particulate matter per day. To achieve the socially optimal quantity of pollution, the government auctions off 120 million…

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5. Which of the following best describes the issuance of permits to pollute as a way of influencing the amount of pollution? Permits to pollute: a. encourage business to pollute.b. should be purchased by those whose pollution is the least expensive to eliminate.c. should be purchased by those whose pollution is the most expensive to eliminate.d. are preferable over taxes because they can be limited to exactly the efficient amount of pollution.

3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits).     Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.