Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 17.3, Problem 1ST
To determine
Tradable pollution permit and regulation or command-and-
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The primary source of air pollution in the small town of Smokey, Nevada is a nearby steel mill. The local environmental agency has decided that the mill needs to reduce its emissions because the town's
population is located directly downwind from it. Currently the agency is considering three different approaches to reducing pollution from the mill: a technology standard, an emission standard and an
emission tax.
Why might the owner of the mill prefer an emission standard to a technology standard that would produce the same level of emissions?
a
Because with emission standards the polluter is more flexible in selecting the technology that will minimize her abatement cost
Ob. Because polluters usually try to stick to their existing technology
O C. Because it has been proven to be easier to implement
O d. Because polluters, as all producers are suspicious about new technologies
Pollution is a negative externality. Why is it that the social optimum in a market that generates pollution will, generally, not result in zero pollution?
The table below shows the demand for pollution permits to emit hydrocarbons in a particular industrial park. Each permit allows the owner to
release one tonne of pollutants into the atmosphere.
Price per
Pollution Permit
Quantity of Permits
$4,500
100
4,000
200
3,500
300
3,000
400
2,500
500
2,000
600
1,500
700
were charged, how many tonnes of pollutants would be discharged into the atmosphere, assuming a straight-line
a. If fee for a pollution perm
demand curve?
Quantity:
tonnes
b. Suppose government were to set a fee of $2,500 per pollution permit. How many tonnes of pollutants would now be dumped? What is the total
revenue received by government?
Quantity:
tonnes
Total revenue: $
c. Suppose that a new technology allows for a significant reduction in hydrocarbons at a relatively low cost so that the demand for pollution permits
in the industrial park drops by 200 tonnes. Assuming that government holds the permit fee at $2,500, how many tonnes of pollutants would now be
dumped? What…
Chapter 17 Solutions
Microeconomics
Ch. 17.1 - Prob. 1STCh. 17.1 - Prob. 2STCh. 17.2 - Prob. 1STCh. 17.2 - Prob. 2STCh. 17.2 - Prob. 3STCh. 17.2 - Prob. 4STCh. 17.3 - Prob. 1STCh. 17.3 - Prob. 2STCh. 17.3 - Prob. 3STCh. 17.4 - Prob. 1ST
Ch. 17.4 - Prob. 2STCh. 17.4 - Prob. 3STCh. 17.5 - Prob. 1STCh. 17.5 - Prob. 2STCh. 17.5 - Prob. 3STCh. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Prob. 10QPCh. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Economists sometimes shock noneconomists by...Ch. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Prob. 1WNGCh. 17 - Prob. 2WNGCh. 17 - Prob. 3WNG
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- Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.arrow_forwardIs zero pollution possible under a marketable permits system? Why or why not?arrow_forwardThe table below shows the supply and demand conditions for a furniture factory that pollutes the air. The third column (Qs1) represents a supply curve without accounting for the social cost of pollution. The fourth column (Qs2) represents the supply curve when the firm is required to account for the social cost of pollution. Price QD Qs1 Qs2 $10 450 400 250 $15 440 440 290 $25 430 480 330 $30 420 520 370 $35 410 560 410 Answer the following: a) What is the negative externality in this situation? b) Identify the equilibrium price and equilibrium quantity when we account only for private costs. c) Identify the equilibrium price and equilibrium quantity when we account for the social costs. d) How does accounting for the externality affect the equilibrium price and quantity? JUSTIFY your answer!arrow_forward
- 8.3 After conducting her analysis of housing prices in Novosibersk, Oxana notes that every- one in her study has exactly the same income, graduated from the same school, and listens to the same music; in fact, everyone in town appears to have exactly the same tastes and income. Does Oxana have enough information to construct a typical marginal willingness- to-pay function for pollution in Novosibersk? Why?arrow_forwardFirms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost M CLA L = (1/2) aL and older firms with dirtier M CAH = aH , where ai is the level of abatement undertaken by firms of type i = L,H. The social marginal benefit of abating pollution from this particular industry is MBA = 120 - A, where A is the aggregate level of abatement in that industry: 1. What Pigouvian tax t will implement the efficient allocation (aL; aH )? Is the resulting allocation an efficient allocation? What is the government’s tax revenue? 2. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms cost, the government just implements a uniform standard aui = A*/2. Is this allocation efficient? If not, what is the deadweight loss?arrow_forwardFirms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost M CLA L = (1/2) aL and older firms with dirtier M CAH = aH , where ai is the level of abatement undertaken by firms of type i = L,H. The social marginal benefit of abating pollution from this particular industry is MBA = 120 - A, where A is the aggregate level of abatement in that industry: 1. What Pigouvian tax t will implement the efficient allocation (aL; aH )? Is the resulting allocation an efficient allocation? What is the government’s tax revenue? 2. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms cost, the government just implements a uniform standard aui = A*/2. Is this allocation efficient? If not, what is the deadweight loss? 3. Suppose instead that the government uniformly allocates tradable emission’s permits. What abatement allocation will prevail after the…arrow_forward
- Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost M CLA L = (1/2) aL and older Örms with dirtier M CAH = aH , where ai is the level of abatement undertaken by firms of type i = L,H. The social marginal benefit of abating pollution from this particular industry is MBA = 120 - A, where A is the aggregate level of abatement in that industry: (a) To design an efficient emissions standard, the government needs to determine which is the efficient abatement allocation (aL; aH ). In order to do this, obtain a cost e§ective abatement allocation (aL;aH) that provides an aggregate abatement level A = a*L , a*H and then proceed to determine the efficient level A * (Hint: You should obtain that MCA = A/3).arrow_forwardExplain why cost-effective pollution abatement is not necessarily equitable in 2-3 sentences.arrow_forwardWhich of the following best explains why economists believe that there is an optimal amount of pollution reduction? The marginal cost of reducing pollution is decreasing, while the marginal benefit of reducing pollution is increasing. Economists only think about profits The marginal cost of reducing pollution is increasing, while the marginal benefit of reducing pollution is decreasing. Economists focus on the benefits of reducing pollution and ignore the cost.arrow_forward
- Firms in a polluting industry can be classified in two groups: newer Örms with a cleaner technology that can abate pollution at a lower marginal cost M CLA L = (1/2) aL and older Örms with dirtier M CAH = aH , where ai is the level of abatement undertaken by firms of type i = L,H. The social marginal benefit of abating pollution from this particular industry is MBA = 120 - A, where A is the aggregate level of abatement in that industry: (a) To design an efficient emissions standard, the government needs to determine which is the efficient abatement allocation (aL; aH ). In order to do this, obtain a cost e§ective abatement allocation (aL;aH) that provides an aggregate abatement level A = a*L , a*H and then proceed to determine the efficient level A * (Hint: You should obtain that MCA = A/3).arrow_forwardHow do economists determine the optimal amount of pollution control?arrow_forwardThe table below gives a firm's marginal benefit of each ton of pollution. there is no private cost of pollution. If the government implements a $30 per ton tax on pollution, the firm reduces its pollution by how many tons? (Your answer should be an integer greater than or equal to zero.) Ton MPB 1234567∞ $68 $56 $45 $35 $26 $18 $11 8 $5arrow_forward
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