Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airline feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel. 625 MSC 385 325 MC 265 225 MB 100 120 Quantity of air travel Rgure 16.4 Refer to Figure 16.4. Suppose the government assigns property rights to the airlines. then the airlines and the residents engage in negotiations. Which of the following are true? (Select all that apply) O a. The airlines will compensate the residents to increase flights O b. The quantity of air travel is unchanged Oc. The airlines are made worse off O d. Residents will compensate the airlines to decrease flights O e. Quantity of air travel decreases by 20 units Of. The residents are made better off Og. Price of air travel increases by $60 Oh Quantity of air travel will be 120 units None of the oth Dollars, cost, benefit

Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airline feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel. 625 MSC 385 325 MC 265 225 MB 100 120 Quantity of air travel Rgure 16.4 Refer to Figure 16.4. Suppose the government assigns property rights to the airlines. then the airlines and the residents engage in negotiations. Which of the following are true? (Select all that apply) O a. The airlines will compensate the residents to increase flights O b. The quantity of air travel is unchanged Oc. The airlines are made worse off O d. Residents will compensate the airlines to decrease flights O e. Quantity of air travel decreases by 20 units Of. The residents are made better off Og. Price of air travel increases by $60 Oh Quantity of air travel will be 120 units None of the oth Dollars, cost, benefit

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 10SCQ: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the...

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Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.) Using the information in Table 12.8, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Production, Costs and Industry Structure if you need a refresher on how to calculate marginal costs. What is the optimal level of sewage for this city? Why not just pass a law that films can emit zero sewage? After all, the total benefits of zero emissions exceed the total costs.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement, and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the planes operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R, how much should the firm invest in R on top of the private return; that is, an R private return to HighFlyer Airlines would have a 9 social return. How much investment is socially optimal at the 6 interest rate?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwoods forest and grow com, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, 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 T and R, decide which one is better. Why? In the choice between T and S, can you say which one is better, and why? If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?
What is the difference between private costs and social costs?
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?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
In a market without environmental regulations, will the supply curve for a film account for private costs, external costs, both, or neither? Explain.
Consider the case of global environmental problems that spill across international borders as a prisoners dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can cheese whether to protect the environment, at a cost of 10, or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of 16, but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of 32, which is divided equally between the two centuries. In Table 12.10, fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.