EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 7, Problem 10SP
To determine
Explain whether the proposed solution makes the builder internalize the externality.
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With rental rates exceeding $3,000 per
square foot per year, retail space in Causeway
Bay, Hong Kong, is among the world's most
expensive. In 2011, the Town Planning Board
limited the height of future buildings in the
area to between 130 and 200 meters. Real
estate developer Hysan Group, which owns
nine properties in the area, asked the Board
to relax the limits, but the Board denied the
application.
What externality does the height restriction
resolve?
How would the Hysan Group benefit from
relaxing the height restrictions?
Should the restrictions on height be the same
throughout Hong Kong?
Portland is trying to reduce annual NOx emissions by 200 units. Its environmental
planners are now deciding how to allocate the abatement mandate between cars and
power plants. The marginal costs of abatement from cars (Qc) and abatement from
plants (Qp) are MACC = 3Qc and MACP = Qp. Each source is currently emitting 200
units (so total emission from both sources are 400). (Note: Q is the quantity of
abatement and the goal is to abate a total of 200 units).
%3D
(a) On your work sheet Graph the two marginal cost lines (on two separate graphs).
(b) The traditional approach has been to assign all 200 units of abatement to the
power plants, i.e. Qc = 0 and Qp = 200. What is the total cost of abatement under
this system?
Show your calculations on your work sheet and enter the total cost in the blank
below.
(c) The planners have hired you to tell them what the cheapest way is for the city to
divide the 200 units of abatement between the two sources. What do you tell them?
(ie. what are Qc"…
You have just been elected governor of a medium-sized U.S. state. Citizens want you to take bold action to reduce greenhouse gas emissions— but they do not want prices of gasoline or electricity to rise. Industries in your state are wary of emissions reductions being required of them but are willing to explore ideas with you. The state legislature will support your efforts as long as you remain popular with voters. The state to your west has just passed ambitious legislation mandating steep emissions cuts. The state to your east has joined a regional emissions trading consortium. The state to your north has just established a revenue-neutral carbon tax. What actions will you take in your first year as governor, and why? What effects would you expect each action to have?
Chapter 7 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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