Consider two approaches to reducing emissions of
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- Production of Commodity X creates 10 pounds of emissions for every unit of X produced. The demand and supply curves for X are described by the following table: What is the equilibrium price and quantity, and how much pollution will be emitted?arrow_forwardExplain the difference between regulating emissions via fees vs. standards. Which of the two would be more efficient if there are large differences between the firms’ marginal costs of abatement.arrow_forwardPlease explain each solution step by step.Consider an economy with 2 plants, A and B, whose operations produce emissions. The graphs show the marginal benefits (MB) to each plant from its emissions on the y-axis (in Euros) and the quantity of emissions in tons on the x-axis. The graph on the left represents the case when the government imposes a limit on emissions. The graph on the right represents the case when the government imposes a tax on emissions.a) let’s say the government limits the emissions of each plant at 4 tons. The marginal benefit of 4 tons of emissions to plant A is 2 euros. Referring to the graph on left, what is the welfare loss to plant A from the limit imposed by the government? (euros)b) now let’s say the government sets a unit tax on emissions of 6 euros. Under this tax, plant B will produce 6 tons of emissions and plant A will produce 2 tons of emissions. Referring to the graph on the right, what is the total net welfare from the imposition of the tax?…arrow_forward
- Please explain each solution step by step. Consider an economy with 2 plants, A and B, whose operations produce emissions. The graphs show the marginal benefits (MB) to each plant from its emissions on the y-axis (in Euros) and the quantity of emissions in tons on the x-axis. The graph on the left represents the case when the government imposes a limit on emissions. The graph on the right represents the case when the government imposes a tax on emissions. a) let's say the government limits the emissions of each plant at 4 tons. The marginal benefit of 4 tons of emissions to plant A is 2 euros. Referring to the graph on left, what is the welfare loss to plant A from the limit imposed by the government? (euros) b) now let's say the government sets a unit tax on emissions of 6 euros. Under this tax, plant B will produce 6 tons of emissions and plant A will produce 2 tons of emissions. Referring to the graph on the right, what is the total net welfare from the imposition of the tax?…arrow_forwardConsider the problem of carbon dioxide emissions. We will abstract away from the problem slightly, assuming there are polluters and consumers in two regions, the OECD (O) and the rest of the world (R). Suppose the marginal cost of controlling CO₂ emissions is $10 per ton of emissions. Let the marginal willingness to pay for pollu- tion reduction be 13 - Q for region O and 12 - 2Q for region R, where Q is the amount of pollution reduction. The United Nations is considering two proposed methods for controlling CO₂ emissions, both involving polluters paying for the damage they cause. Proposal A involves the polluters paying damages to each region for the pollu- tion generated Proposal B involves the polluters in each region independently nego- tiating pollution reductions, assuming the other region is not undertaking pollution reduction. a. Graph the marginal abatement cost and the total marginal willingness-to-pay schedules. What is the socially efficient level of emission reductions, Q?…arrow_forwardConsider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 11 - 2E_1 MAC_2 = 12 - E_2, and assume marginal external damages (MED) from aggregate emissions from the two firms (E_Agg = E_1 + E_2) is: MED = E_Agg. The socially efficient level of aggregate abatement is ____. (Recall that abatement is how much firms cut back their emissions relative to the no government intervention case)arrow_forward
- How do taxes, pollution charges, and cap-and-trade work to reduce emissions? When a cap-and-trade is implemented _______.arrow_forwardProblems and Applications Consider two types of cars: gasoline-powered cars and electric cars. Because conventional gasoline-powered cars burn fuel during their operation, people who drive gasoline-powered cars impose a externality on the society. A policy implication of this result is a those who drive gasoline-powered cars. Because electric cars help reduce greenhouse gas emissions, people who drive electric cars impose a externality on the society. A policy implication of this result is a those who drive electric cars.arrow_forwardWhich of the following statements about pollution taxes, cap and trade, or command-and-control standards is FALSE? a.) Pollution taxes strictly control the amount of pollution but leave marginal abatement costs to be determined by the market. Cap-and-trade programs strictly control marginal abatement costs but leave the actual amount of pollution to be determined by the overall level of economic activity. b.) Pollution taxes are unpopular in the U.S. because American companies tend to dislike taxes in general. However, pollution taxes offer firms some greater certainty about how large will be their marginal cost of abatement on the last unit of abatement they will need to do, if they are to minimize the costs they incur both for cleanup and for pollution taxes. c.) Both command-and-control pollution standards, and cap-and-trade programs, can effectively limit the total amount of pollution, but command and control will be least-cost only by accident. Usually,…arrow_forward
- The figure to the right shows the marginal cost of pollution abatement for two firms, A and B. The firms were initially abating 46 units of pollution each. Now they can trade pollution permits at a price of $22. As a result, firm A sells permits and firm B buys permits. Both firms are now better off and their total saving will be $ (Enter your answer rounded to the nearest whole number.) Dollars per Unit ($) 34 22 10 The Efficiency of Tradable Pollution Permits MCB 31 46 61 Quantity of Pollution Abatement MCA Narrow_forwardWater is normally bottled in plastic. Let’s assume the manufacturing process emits fumes that affect those living around the bottling plants. The external cost generated for every bottled water is 25 cents. Illustrate and calculate the efficient equilibrium. Explain how the market is misallocating resources by overproducing bottled water. Suppose empty water bottles were routinely discarded on the street as litter. Make an argument that litter represents an external cost in terms of lost benefits. To whom? What does litter have to do with allocating scarce resources? 3. How would you model the litter problem in the above supply/demand diagram for bottled water?arrow_forwardIn Unit 5, you are learning about negative externalities and environmental protection. One activity that qualifies for negative externalities is the poaching of animals in several countries throughout the world. You will analyze the topics of negative externalities and environmental protection by completing the learning journal. 1. Choose one of the approaches listed below on protecting elephants from poachers in African countries. A. The government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all local people to enter the parks or to injure either the elephants or their habitat in any way. B. The government sets up national parks and designates ten villages around the park's edges as official tourist centers that become places where tourists can stay and bases for guided tours inside the national park. 2. Depending on the approach you have chosen (A or B), explain how the incentives will affect the local villagers, who are…arrow_forward
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage Learning