Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Chapter 14, Problem 5SQ
To determine
The meaning of the private cost.
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The government has recently introduced a marketable permit program for major polluters where one permit gives permission to pollute one unit. When the program is introduced, Firm A emits 400 units of pollutant and so is granted 400 permits. After one year, firms are issued 25% fewer pollution permits. If Firm A reduces its pollutants from 400 units to 240 units, how many permits does it sell after one year?
Suppose there are 2 petrochemical companies that cause water pollution in the surrounding environment with marginal costs MC1 = 150e1 and MC2 = 50e2 (where e1 and e2 are the amount of waste in m3 reduced by company 1 and company 2). Initially, company 1 disposed of 50 m3 of waste and company 2 disposed of 40 m3 of waste.
a. If the government wants to ensure the total waste is reduced by 20 m3 with a cost-effective approach, how much waste must each company reduce?
There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce.
What is the competitive equilibrium price and quantity in the market for electricity? (remember that in a competitive market the price will be driven down to marginal cost (since firms in a competitive market earn zero economic profit).
How much pollution is there at the competitive equilibrium and what is the social cost of this pollution?
Chapter 14 Solutions
Economics For Today
Ch. 14.2 - Prob. 1.1GECh. 14.2 - Prob. 1.2GECh. 14.2 - Prob. 1.3GECh. 14.2 - Prob. 2.1GECh. 14.2 - Prob. 2.2GECh. 14.2 - Prob. 2.3GECh. 14.2 - Prob. 2.4GECh. 14 - Prob. 1SQPCh. 14 - Prob. 2SQPCh. 14 - Prob. 3SQP
Ch. 14 - Prob. 4SQPCh. 14 - Prob. 5SQPCh. 14 - Prob. 6SQPCh. 14 - Prob. 7SQPCh. 14 - Prob. 8SQPCh. 14 - Prob. 9SQPCh. 14 - Prob. 10SQPCh. 14 - Prob. 11SQPCh. 14 - Prob. 12SQPCh. 14 - Prob. 13SQPCh. 14 - Prob. 14SQPCh. 14 - Prob. 15SQPCh. 14 - Prob. 16SQPCh. 14 - Prob. 1SQCh. 14 - Prob. 2SQCh. 14 - From an economic viewpoint, the optimal amount of...Ch. 14 - Prob. 4SQCh. 14 - Prob. 5SQCh. 14 - Prob. 6SQCh. 14 - Prob. 7SQCh. 14 - Prob. 8SQCh. 14 - Prob. 9SQCh. 14 - Prob. 10SQCh. 14 - Prob. 11SQCh. 14 - Prob. 12SQCh. 14 - Prob. 13SQCh. 14 - Prob. 14SQCh. 14 - Prob. 15SQCh. 14 - Prob. 16SQCh. 14 - Prob. 17SQCh. 14 - Prob. 18SQCh. 14 - Prob. 19SQCh. 14 - Prob. 20SQ
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- From an economic viewpoint, the optimal amount of pollution a. is zero because all pollution imposes costs on society. b. is that amount firms create when they maximize economic profits by setting their marginal private costs equal to market price. c. is that amount where the marginal social costs of producing a good precisely equals the price of the good. d. Both answers b. and c. are correct.arrow_forward(External Costs with Variable Technology) Think of an industry that pollutes the water and has access to variable technology for reducing that pollution. Graphically illustrate and explain the impact of each of the following, other things constant, on the optimal level of water quality: a. New evidence is discovered about a greater risk of cancer from water pollution. b. The cost of pollution-control equipment increases. c. A technological improvement reduces the cost of pollution control.arrow_forward(Optimal Provision of Public Goods) Using at least two individual consumers, show how the market demand curve is derived from individual demand curves (a) for a private good and (b) for a public good. Once you have derived the market demand curve in each case, introduce a market supply curve and then show the optimal level of production.arrow_forward
- Is zero pollution possible under a marketable permits system? Why or why not?arrow_forwardThere are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. Q1: What is the social cost at the pollution at the competitive equilibrium? and what is the socially optimal quantity of pollution?arrow_forwardThere are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. Suppose that government allows firms to trade their permits to emit carbon monoxide. Q1: What is the competitive price of a permit to emit 1 cubic foot of carbon monoxide? And how much electricity is produced after the permits are traded?arrow_forward
- There are three industrial firms in Happy Valley. Firm Initial Pollution Level Cost of Reducing Pollution by 1 Unit (Units) (Dollars) A 30 5 B 45 10 C 60 20 The government wants to reduce pollution by 90 units, so it gives each firm 30 tradable pollution permits. Because firm has the highest cost of reducing pollution by 1 unit, it would like to another firm. Because firm has the lowest cost of reducing pollution by 1 unit, it is willing to the firm with the highest cost.arrow_forwardWhen private costs differ from social costs, leading to a Tragedy of the Commons, which of the following must be present? Question 12 options: a negative externality excludable resources a positive externality poor profit incentive to capitalize on the resourcearrow_forwardSuppose a lake enjoyed by three homeowners is cleaned up to the socially efficient level of pollution by splitting the cost of cleanup equally among the three homeowners. 1. Describe a situation where at least one homeowner would be made worse off by this cleanup policy. 2. In the situation you described above, is there an alternative way to allocate costs that would avoid this problem? 3. What are the barriers, if any, to achieving this alternative? (250 words or fewer.)arrow_forward
- The production of plastic creates pollution, which, in sufficient quantities, can harm people's health. Assume that the plastic industry is perfectly competitive. We know that the industry will produce more output than is socially optimal, since firms do not bear the costs of pollution (that is, pollution is a negative externality). Without government intervention, the market output will be 50 million units at a price of $10, where $10 is the minimum AC of firms in the industry. This cost is the long-run marginal private cost (MPC) of making plastic. The marginal social cost (MISC) of plastic is $15 at this level of output; the MSC includes the external social cost of pollution. Since MSC exceeds price, output is too high. The socially optimal output is 30 million units at a price of $13. This output can be attained by levying an excise tax of $3 on each unit of plastic. Assume that the demand and marginal social cost (MSC) curves are linear, as shown in the graph below. (a) Calculate…arrow_forwardThe production of plastic creates pollution, which, in sufficient quantities, can harm people’s health. Assume that the plastic industry is perfectly competitive. We know that the industry will produce more output than is socially optimal, since firms do not bear the costs of pollution (that is, pollution is a negative externality). Without government intervention, the market output will be 50 million units at a price of $10, where $10 is the minimum AC of firms in the industry. This cost is the long-run marginal private cost (MPC) of making plastic. The marginal social cost (MSC) of plastic is $15 at this level of output; the MSC includes the external social cost of pollution. Since MSC exceeds price, output is too high. The socially optimal output is 30 million units at a price of $13. This output can be attained by levying an excise tax of $3 on each unit of plastic. Assume that the demand and marginal social cost (MSC) curves are linear, as shown in the graph below. (a) Calculate…arrow_forwardThe production of plastic creates pollution, which, in sufficient quantities, can harm people's health. Assume that the plastic industry is perfectly competitive. We know that the industry will produce more output than is socially optimal, since firms do not bear the costs of pollution (that is, pollution is a negative externality). Without government intervention, the market output will be 50 million units at a price of $10, where $10 is the minimum AC of firms in the industry. This cost is the long-run marginal private cost (MPC) of making plastic. The marginal social cost (MISC) of plastic is $15 at this level of output; the MSC includes the external social cost of pollution. Since MSC exceeds price, output is too high. The socially optimal output is 30 million units at a price of $13. This output can be attained by levying an excise tax of $3 on each unit of plastic. Assume that the demand and marginal social cost (MSC) curves are linear, as shown in the graph a. The government…arrow_forward
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