The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level ofpollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policygoal, consider the following scenario.An environmental study conducted in a particular city suggests that if a chemical plant emits more than 70 million tons of chemicalseach year, the water supply will become contaminated beyond the point where filtration techniques can make it safe for drinking.If this is all the information the government has, which solution to reduce pollution is appropriate? Check all that apply.O Tradable permitsO Corrective taxes Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negativeexternality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution.To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows thedaily demand for pollution rights.Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.Graph Input Tool80Daily Demand for Pollution Rights72I Price(Dollars per ton)864QuantityDemanded36056(Millions of tons)48403224Demand1684080 120 160 200 240 280 320 360 400QUANTITY (Millions of tons)Suppose the government has determined that the socially optimal quantity of chemical pollution is 160 million tons per day.One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of Sper tonof chemicals emitted will achieve the desired level of pollution.Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve thedesired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. Toachieve the socially optimal quantity of pollution, the government auctions off 160 million pollution permits. Given this quantity of permits, the pricefor each permit in the market for pollution rights will be $PRICE (Dollars per ton)

The curve that depicts various quantities of goods and services being demanded by customers at…

Suppose the government has determined that the socially optimal quantity of chemical pollution is 160 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. tax (or price in this case) of S per ton of chemicals emitted will achieve the desired level of pollution. Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 160 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $

Suppose the government has determined that the socially optimal quantity of chemical pollution is 160 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. tax (or price in this case) of S per ton of chemicals emitted will achieve the desired level of pollution. Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of chemicals per day. To achieve the socially optimal quantity of pollution, the government auctions off 160 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.6P

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Assume citizens of Destrahan are complaining that Shell Chemical and Dow Chemical are polluting the environment. Currently, each firm emits 40 tons of pollution per year. Shell Chemical could reduce its pollution at a cost of $500 per ton, and Dow Chemical could reduce its pollution at a cost of $100 per ton. To reduce overall pollution to 40 units, the mayor gives each firm 20 tradable pollution permits. Each permit allows a firm to emit one ton of pollution. Assuming each permit has a market value is $200, what is the cost of reducing pollution to the desired level? a.$2,000 b.$4,000 c.$8,000 d.$10,000
The following table shows the marginal costs for each of the four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $ 54, and for Firm A to eliminate a second unit of pollution it would cost an additional$67. Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price for the permits? a.$69b.$97c.$81d. 583
Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 130 165 220…
Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm…
There are three identical firms in Happy Valley. Firms Initial Pollution Level Cost of Reducing Pollution by 1 unit A 30 units $20 B 40 units $30 C 20 units $10 The government wants to reduce total pollution to 60 units, so it gives each firm 20 tradable permits. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so? What is the total cost of pollution reduction in this situation? How much larger would the cost of pollution reduction be if the permits could not be traded?
Utilizing market-based strategies, government can control contamination. By utilizing approaches, for example, tradable pollution permits or corrective taxes on contamination emissions a. Assume the government has a corrective tax in place on each ton of coal transmitted and there is an increase in the number of firms producing in this industry. If the government wants to maintain the same amount of pollution that existed prior to the entry of these firms, how should it adjust the corrective tax? Provide a well-labelled graph and explain. b. Assume that instead that the government has a pollution permit policy in place and there is an increase in the number of firms producing in this industry. If the government wants to maintain the same amount of pollution that existed prior to the entry of these firms, how should it adjust the number of permits issued? Provide a well-labelled graph and explain.
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…
Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods:Methods to Reduce Pollution1. The government imposes pollution standards using regulation.2. The government issues tradable pollution permits.The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms.FirmCost of Eliminating the...First Unit of PollutionSecond Unit of PollutionThird Unit of Pollution(Dollars)(Dollars)(Dollars)Firm A 130 165 220Firm B 600 750 1,200Firm C…
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,…
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?
Assume that each gallon of gas consumed creates extra costs for the citizens of Iola in the form of congestion, noise, and pollution. Researchers from Allen Community College have estimated that the Marginal Social Cost of the consumption of gasoline is described by the following equation: Marginal Social Cost: P = 1 + 2 Q Graph the market. Be sure to fully and clearly label the graph, including: the Demand (D), the Marginal Private Cost (MPC), the Marginal Social Cost (MSC), the Private Equilibrium Quantity (Qpe), Private Equilibrium Price as (Ppe), the Socially Optimal Price (Ps), the Socially Optimal Quantity (Qs), and the Deadweight Loss (DWL).
Suppose an emissions standard is implemented that required each plant to reduce its pollution by 5,000 tons. What will be the Total Cost of Pollution Reduction for the entire industry? Suppose instead of an emissions standard, the government implements a tradeable permit system. Each firm is now given 3,000 permit each (1 permit equals 1 ton of pollution allowed). How many permits will be traded between the 2 firms? (Hint: The total amount that need to be reduced is 10,000 tons. i.e. Q1 + Q2 = 10,000)