(Figure: Carbon Dioxide Pollution in Duopoly) Use Figure: Carbon Dioxide Pollution in Duopoly. If the government does not intervene in the pollution market, equilibrium will occur where firm A produces_ tons of pollution, and firm B produces_____tons of pollution, for a total of_ tons. Marginal benefit | to individual producer $1,100 1,000 900 800 700 600 500 400 300 200 100 0 MBB MBA 200 O 1,000; 0; 1,000 800; 1,400; 2,200 O 0; 1,000; 1,000 600 1,000 1,400 1,800 2,200 Quantity of pollution emisions (tons) 2,000; 2,000; 4,000

(Figure: Carbon Dioxide Pollution in Duopoly) Use Figure: Carbon Dioxide Pollution in Duopoly. If the government does not intervene in the pollution market, equilibrium will occur where firm A produces_ tons of pollution, and firm B produces_____tons of pollution, for a total of_ tons. Marginal benefit | to individual producer $1,100 1,000 900 800 700 600 500 400 300 200 100 0 MBB MBA 200 O 1,000; 0; 1,000 800; 1,400; 2,200 O 0; 1,000; 1,000 600 1,000 1,400 1,800 2,200 Quantity of pollution emisions (tons) 2,000; 2,000; 4,000

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 8PA

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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?
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
Consider the case of global environmental problems that spill across international borders as a prisoners dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can cheese whether to protect the environment, at a cost of 10, or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of 16, but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of 32, which is divided equally between the two centuries. In Table 12.10, fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
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.
Table 12.5 provides the supply and demand conditions for a manufacturing film. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the film is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included.
Do market demand curves reflect positive externalities? Why or why not?
A city currently emits 15 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits. Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this City. What is the optimal level of sewage for this city? How can you tell?