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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?(A) Suppose that the two firms merge. Write down the profit function of the merged firm. Calculate the profit maximizing level of output, the amount of pollution for the merged firm, and its profit. Is the merger Pareto improvement? Why or why not? (B) Suppose that the merger is forbidden by the government. Instead, now the fishery has the property right to water. In other words, anybody who wants to pollute the water needs to buy a pollution right from the fishery. Let the price of the pollution right be Px. Write down the steel mill’s new profit function and the fishery’s new profit function. (C) Calculate the profit maximizing level of output for each firm, the amount of pollution, and the price of pollution right. please, please answer the three questions together..Please help and explainAssume a water market, and let MB denote the marginal benefit from spraying fertilizers while MC denotes the marginal cost. That is, MB = 10 - q, and MC = 3/2 q where q denotes total pollution generated.The state government would like to define the rights to the underground water and set an institution that will lead to pollution regulation. 1. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. What is the net benefit, net cost, and the equilibrium amount of pollution generated, i.e., q?2. Use a second figure to explain how well-defined property rights can create a market for the pollution and internalize fertilizer's social cost. Separate the analysis to two different institutions and assume surpluses are distributed evenly between the polluter and pollutee:1. The cotton producer, who is also the polluter, has the right to pollute and the ownership of the underground water.2. Assume the dairy farmer, who is the pollutee,…
- Q4. (a) If you are a firm owner who is operating in the perfect competitive market, you areproducing socially efficient outcome. Does it imply that your profits are zero? If you become amonopolist then why do you deviate from the socially efficient outcome? b) In Delhi, as the winter season is approaching, how will it affect the demand function and themarket equilibrium of sweater market? Now after that if the price of wool increases how will themarket equilibrium be affected?There are three industrial firms in Happy Valley.The government wants to reduce pollution to 60 units, so it gives each firm 20 tradablepollution permits.a. Who sells permits and how many do they sell? Who buys permits and how many dothey buy? Briefly explain why the sellers arid buyers are each willing to do so. What isthe total cost of pollution reduction in this situation?b. How much higher would the costs of pollution reduction be if the permits could notbe tradedExample: Question 4a.) Arthur’s demand to reduce electric and magnetic fields (EMFs) is P = 20 – 2 Q, whileRonald’s demand is P = 15 – 3 Q. If the marginal cost of reducing emissions is equal to$15 and is constant, what is the optimal amount of EMF reduction? b.) What Lindahl prices would you charge Arthur and Ronald? What might prevent you fromcollecting these prices?c.) How would your answers change if the marginal cost of reducing emissions was equal to$10 and is constant?d.) What are the consumer surpluses of Arthur and Ronald in c.)?
- What is an externality in economics? Explain how a neighbor’s barking dog could be both a positive and a negative externality. Can pollution ever make us better off? How do we know? Should we aim to eliminate all pollution? If not, what should our goal be? Defend your answer. When thinking about types of goods, what does rivalry mean? What does excludability mean? What are the four categories of goods we can identify using those attributes, and what is an example of a good in each category?Complete the following Exercises. Use complete sentences. Consider two firms who each release 10 units of pollution initially, for a total of 20 units. Their supply curves for abatement are given below. These supply curves measure the marginal cost of abatement, or the cost of cleaning up each unit of pollution. For example, it costs firm 1 $40 to clean up (or abate) the 1st unit, $80 to clean up the 2nd unit, and so forth. Supply of Abatement UnitFirm 1Firm 2 1$ 40$ 36 2$80$56 3$120$76 4$160$96 5$200$116 6$240$136 7$280$156 8$320$176 9$360$196 10$400 $216 A.) Assume that the damages from the pollution are an external cost from the standpoint of the two firms. How many units will each abate? Why?Why are their marginal costs of abatement (supply curves) rising as they eliminate more pollution (i.e., as they get closer to zero units of pollution)? Now assume the Environmental Protection Agency has determined that the desired…(J) Suppose the production process of a particular good creates a negative externality such as pollution. Other things being equal, would society be better off if this good were produced by a perfectly competitive market or by a monopoly? a. Society would be better off if this good were produced by a perfectly competitive market, because a perfectly competitive market responds to consumers' desires in the long run b. Society would be better off if this good were produced by a perfectly competitive market, because a perfectly competitive market will produce the quantity where Marginal Revenue equals Marginal Cost c. Society would be better off if this good were produced by a monopoly,
- 1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Explain why the public supply curves differ from the private supply curves, and how this represents the externality from second-hand smoke. Highlight the area(s) of your diagram that represents a social loss. (b) Calculate the social loss for both. (c) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's amount of tax or subsidy would the government…1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?19.6 Suppose there are only two individuals in society. Person A’s demand curve for mosquito control is given by qa = 100- pfor person B, the demand curve for mosquito control is given by qb= 200-p Suppose mosquito control is a pure public good; that is, once it is produced, everyone benefits from it. What would be the optimal level of this activity if it could be produced at a constant marginal cost of $120 per unit? If mosquito control were left to the private market, how much might be produced? Does your answer depend on what each person assumes the other will do? If the government were to produce the optimal amount of mosquito control, how much will this cost? How should the tax bill for this amount be allocated between the individuals if they are to share it in proportion to benefits received from mosquito control?
