Consider the graph below where there are two pollution-abatement technologies (Old and New) available to a firm. Assume that there is an emissions tax equal to T. If the firm sticks with the Old technology, then its total abatement costs will be #3 Tox E | A E
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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.Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.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 MCLA = (1/2)aL and older firms with dirtier MCHA = 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. 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 effective abatement allocation (aL, aH)that provides an aggregate abatement level A = aL + aH, and then proceed to determine the efficient level A (Hint: You should obtain that MCA = A=3)
- 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).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 MCLA = (1/2)aL and older firms with dirtier MCHA = 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. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms' costs, the government just implements a uniform standard aui = A* / 2. Is this allocation efficient? If not, what is the deadweight loss?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).
- Explain why cost-effective pollution abatement is not necessarily equitable in 2-3 sentences.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 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?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 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…
- 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 MCLA = (1/2)aL and older firms with dirtier MCHA = 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. Suppose instead that the government uniformly allocates tradable emissionís permits. What abatement allocation will prevail after the permits are traded among firms? Is this allocation efficient?Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: 1602AA MACe=− and 100BB MACe=−, where A e represents firm A’s emissions in tons and B e represents firm B’s emissions in tons. Suppose the government wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1 ton, and that the market for permits is perfectly competitive. a. Suppose the government initially distributes the total number of TEPs it issues equally between the two firms. The permits are distributed free of charge. Once trade in permits takes place, what will be the equilibrium in the market for TEPs (i.e. which firm will buy how many TEPs from the other, and at what price)? b. Briefly describe three problems of setting up a TEP market.Assume there are two polluting Firms A and B in the country with Marginal Costs of Pollution Abatement or Pollution Reduction MCA and MCB respectively. MCA < MCB. In the absence of any pollution policy each Firm is producing 200 tons of pollution. The government plans to cut down the total pollution by half. The government is considering two options: Option 1: Establish a standard obliging each Firm to cut down the pollution by half. Option 2: Allocate 100 pollution permits to each Firm, with each permit allowing 1 ton of pollution. These permits are tradable. a. Which of the two options you will recommend to the government? Why? Support your answer by drawing a figure justifying and explaining your choice. b. What are the inconveniences of such a choice at local level?
