8-1. Consider a piece of land covered by old-growth forest which could potentially be clearedand converted to agricultural use. The marginal benefit MB, the marginal private costsMC and the marginal external costs MEC of converting an area r of land are:MB(x)10 – xMC(x)3МЕС(т) (c) Explain graphically and analytically how a regulator could solve the market failureby either (i) imposing an upper limit on land conversion or (ii) levying a Pigou-vian tax on land conversion, and determine the limit and the Pigouvian tax rate,respectively.

Pigouvian tax is simply an extra cost that is levied by the government on the source of negative…

8-1. Consider a piece of land covered by old-growth forest which could potentially be cleared and converted to agricultural use. The marginal benefit MB, the marginal private costs MC and the marginal external costs MEC of converting an area r of land are: MB(x) = 10 – I MC(r) 3

8-1. Consider a piece of land covered by old-growth forest which could potentially be cleared and converted to agricultural use. The marginal benefit MB, the marginal private costs MC and the marginal external costs MEC of converting an area r of land are: MB(x) = 10 – I MC(r) 3

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 17RQ: In a market without environmental regulations, will the supply curve for a film account for private...

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Question

8-1. Consider a piece of land covered by old-growth forest which could potentially be cleared
and converted to agricultural use. The marginal benefit MB, the marginal private costs
MC and the marginal external costs MEC of converting an area r of land are:
MB(x)
10 – x
MC(x)
3
МЕС(т)

(c) Explain graphically and analytically how a regulator could solve the market failure
by either (i) imposing an upper limit on land conversion or (ii) levying a Pigou-
vian tax on land conversion, and determine the limit and the Pigouvian tax rate,
respectively.

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