Suppose the marginal cost of pollution abatement is constant and equal to 10 percent of GDP for each 10 percent increase in pollution control. Given the following data for a $10 trillion economy, answer two questions, Level of Pollution Abatement (%) 0 (no pollution control) 10 20 30 40 50 60 70 80 90 100 (zero emissions) Marginal Benefit (5 trillions) 2.0 1.7 1.3 1.0 08 06 04 03 02 0.1 Instructions: Enter your responses based on the percentage values provided in the table a. Identify the optimal rate of pollution abatement Now suppose that the marginal costs of pollution abatement decrease to 6 percent of GDP for each 10 percent increase in pollution control because of improved pollution control technology and more efficient sources of renewable energy b. Identify the new optimal rate of pollution abatement

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 12-.5E_1 MAC_2 = 12-E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = (1/3)E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per unit tax on emissions. The per- unit tax on emissions is $ Answer:

QUESTION 3 Fill in the blanks: pollutants are pollutants for which the environment has little or no absorptive capacity. pollutants are pollutants for which the environment has some absorptive capacity.

To model the effects of a carbon tax on CO2 emissions, policymakers study the marginal cost of abatement B(x), defined as the cost of increas- ing CO2 reduction from x to x +1 tons (in units of ten thousand tons- Figure 4). Which quantity is represented by the area under the curve over [0, 3] in Figure 4? B(x) ($/ton) 100 75 50+ 25- 1 3 Tons reduced (ten thousands) FIGURE 4 Marginal cost of abatement B(x).

I Price and cost (thousands of dollars per student) 20 16 12 8 0 200 A) 0 students; 400 students B) 600 students; 600 students C) 400 students; 600 students D) 600 students; 400 students E) 400 students; 400 students S = MC MSB MB 400 600 800 1,000 Quantity (students per year) 35) 35) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the equilibrium number of students being privately educated is and the efficient quantity is

1

Imagine a firm's marginal abatement cost function with existing technologies is: MAC = 200 - 10E. If the firm adopts new pollution abatement technologies, its marginal abatement cost function will be: MAC = 100 - SE. With a tax on emissions of $20, the benefits of adopting the new technologies equal:  Select one: a. $30. b. $20. c. $25. d. $50.

Oregon legislative committee passes cap-and-trade bill Lawmakers are moving Oregon a step closer to adopting what would be the nation's second economywide carbon pricing scheme. after California. Price and cost (cents per mile) Q 40- S=MC a G Source: Portland Business Journal, May 17, 2019 35 The transportation sector is Oregon's largest contributor to carbon emissions. Under what conditions would Oregon's carbon pricing scheme reduce carbon emissions to the efficient quantity? Use a graph to illustrate your explanation. Show the effects of setting the price of carbon too low and too high. 30- 25 20 15 and permits traded at a The efficient quantity of transportation would be produced if the quantity of permits was set such that, price OA. marginal private cost of transportation equals marginal benefit, above marginal external cost B. marginal social cost of transportation equals marginal benefit, equal to marginal external cost OC. marginal social cost of transportation equals marginal…

The marginal private cost of fertilizer production is MPC = 40 + Q, where Q is the amount of fertilizer produced. The marginal benefit (both private and social) of fertilizer is MB = 340 – 4Q. In addition to the private costs faced by producers of fertilizer, people who walk or drive past the area where the fertilizer is produced also face costs because of the horrible smell of the fertilizer; the marginal external cost generated by the fertilizer is MEC = 20 + 3Q. How much fertilizer will be produced by the free market? What is the efficient quantity of fertilizer? Calculate the amount of deadweight loss in this market, and explain what this number means. Suppose that the government realizes that the current amount of fertilizer produced by the free market is inefficient and decides to correct this inefficiency by taxing the production of fertilizer. How large should the tax per unit of fertilizer be to induce the market to produce the efficient amount, and why would such a tax…