EBK ECONOMICS TODAY
18th Edition
ISBN: 9780100663268
Author: Miller
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 31, Problem 8P
To determine
The effects of policy change on market price of pollution allowances.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
Can extreme levels of pollution hurt the economic development of a high-income country? Why or why not?
How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
The table below 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. How does accounting for the externality affect the equilibrium price and quantity?
A group of researchers has estimated the marginal social benefits of improvements in soil fertility per acre to be: P = -1.25Q +20 The government is considering options for supporting farmers to improve soil fertility. The government can set a fee of either $7.50, $5, $2.00 or $0 on nitrogen fertilizers. The marginal cost of providing the program is constant at $5 per acre.
• What is consumer surplus under each of the government pricing options?
• What is the government revenue under each pricing scenario?
• What is the cost to the government under each pricing scenario?
• What is the government (producer) surplus under each of the pricing options?
• What options maximize total social benefits? Explain your answer.
which statement is true
In the absence of market power and externalities, efficiency is achieved in a market when the sum of producer surplus and consumer surplus is maximized.
The benefit received by sellers in a market is measured by producer surplus and producer surplus is calculated as the amount sellers receive for their product minus the cost of production.
In a market, the marginal buyer is the buyer who would be the first to leave the market if the price were any higher.
Moving production from a high-cost producer to a low-cost producer will decrease total surplus.
Suppose the United States changed its laws to allow for the legal sale of a kidney and the government allowed a free market in organs for transplant then there would be a decrease in the price of a kidney and an increase in the shortage of kidneys for transplant.
Total surplus in the market is the summation of consumer surplus and producer surplus and it is maximized at the market equilibrium in the absence of…
Knowledge Booster
Similar questions
- Current research on kidney transplants (see https://www.organdonor.gov/learn/organ-donation-statistics) shows that 17 people a day die while waiting for an organ. This is because: Of the negative externalities that prevent the government from legalizing the buying and selling of organs. Because demand is greater than supply, reflecting the fact that people should be more willing to donate their organs. Because the rationing role of prices is not legally allowed to work in this instance. Because organ prices are so high, most poorer people cannot afford one. A and D only.arrow_forwardTwo identical firms save money from polluting. A firm’s marginal savings from emitting an amount e are given by 10 − 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution, while one unit of emissions from firm 2 results in one unit of ambient pollution. a) Initially the policy-maker decides to institute a standard cap and trade program instead of regulating ambient pollution. If each firm is initially given three emission permits, how many permits will each firm end up with and what will be the price? b) The policy-maker realizes the differences between the firms and de- cides to institute ambient pollution permit trading. What are the transfer coefficients for each of the firms? If instead each firm is given two ambient pollution permits and trading takes place, how much will each firm end up emitting, and what will be the price?arrow_forwardGiven the following information: Initially, a perfectly competitive market for a product is in equilibrium, with an upward-sloping straight-line market supply curve, a downward-sloping straight-line market demand curve, and a market price of $30 per unit. Consumption of this product causes pollution. Initially, the marginal external cost of the pollution caused by consuming the product is $9 per unit. There is no government policy toward the externality. The government then mandates a shift to a new product version, and all firms adopt and produce the latest version. Consumers view the new product version as equally as good as the initial product version. Consumption of the new version of the product causes less pollution, and the marginal external cost decreases by $3 per unit. For each firm, production of the new product version does not change fixed cost, but it does increase average variable cost by $3 per unit. If necessary, the market adjusts to a new equilibrium. There is…arrow_forward
- Please explain if the below statements are true or false related to "Negative externalities". If both demand and supply decrease, there will be a decrease in the equilibrium output, but the effect on price cannot be determined. Free Market Equilibrium is smaller than Socially optimal equilibrium.arrow_forwardSuppose a positive externality is associated with college enrollment. Assume that college instruction is sold in a competitive market and that the marginal social cost of providing it increases with enrollment. Show how a corrective subsidy to college students will increase the market price of instruction. Show the net gain in well-being possible from the subsidy and the amount of tax revenue required to finance its costs on your graph. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardIn a competitive market for tradable pollution permits, the quantity of permits (for a given amount of pollution) is set by ________, and the equilibrium price is determined by ________. a. government policy; government policy b. market forces; government policy c. government policy; the average cost of pollution abatement d. government policy; market forcesarrow_forward
- 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.$10,000arrow_forwardImplementation of carbon pricing in the gasoline market would cause ______ shift of the supply curve, leading to a ______ equilibrium quantity of gasoline and a ______ equilibrium price. A. an outward; lower; higher B. an outward; higher; lower C. an inward; lower; higher D. an inward; higher; lowerarrow_forwardThe following is a copy of the information from Question 1: Consider Product NE, which has a negative externality associated with its production and use ( i.e., the “Incidental Cost” ( IC) of each unit of Product NE is greater than zero). You are told that : * The “Efficient” Output of Product NE = 9000 units * The Free-Market Equilibrium Output of Product NE = 10,000 units * The Consumer’s Surplus + Producer’s Surplus on Unit Number 6000 ( i.e., on that one unit ALONE) is equal to $ 70 ( i.e., the sum of CS + PS = $ 70) * The Cumulative Surplus on the first 9000 units produced is equal to $ 175,000 ( i.e., the sum of the surplus( to society) on ALL 9000 units adds up to $ 175,000) Is the Cumulative Surplus on the first 10,000 units ( i.e., ALL 10,000 units together) greater than $ 175,000, less than $ 175,000, or exactly equal to $ 175,000 ? a. Greater Than $…arrow_forward
- 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 140 million pollution permits. Given this quantity of permits, the price for each permit in the market for pollution rights will be $----- . The previous analysis hinges on the government having good information regarding either the demand for pollution permits or the optimal level of pollution (or both). Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario. Suppose the government knows the optimal quantity of pollution as well as how much it costs a particular polluting firm to reduce pollution at each…arrow_forwardSuppose a firm A produces a product q, but also pollution x that affects a second firm B. Firm A is a competitive firm and faces an equilibrium price of £12 for its product. The cost function of firm A is CA (q,x) = q^2 + (x - 4)^2 . Firm B is a competitive firm and faces an equilibrium price of £10. Firm B’s cost function is CB (r,x) = r^2 + xr. D. Discuss other methods the government can use to restore the social optimum. Discuss advantages and disadvantages of the methods you propose. Explain.arrow_forwardDoes it make sense that accounting for the negative externality results in a higher price? Explain your answer. Does it make sense that accounting for the negative externality results in a lower quantity? Explain your answer.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning