EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Question
Chapter 31, Problem 8P
To determine
The effects of policy change on market price of pollution allowances.
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The table below shows the demand for pollution permits to emit hydrocarbons in a particular industrial park. Each permit allows the owner to
release one tonne of pollutants into the atmosphere.
Price per
Pollution Permit
Quantity of Permits
$4,500
100
4,000
200
3,500
300
3,000
400
2,500
500
2,000
600
1,500
700
were charged, how many tonnes of pollutants would be discharged into the atmosphere, assuming a straight-line
a. If fee for a pollution perm
demand curve?
Quantity:
tonnes
b. Suppose government were to set a fee of $2,500 per pollution permit. How many tonnes of pollutants would now be dumped? What is the total
revenue received by government?
Quantity:
tonnes
Total revenue: $
c. Suppose that a new technology allows for a significant reduction in hydrocarbons at a relatively low cost so that the demand for pollution permits
in the industrial park drops by 200 tonnes. Assuming that government holds the permit fee at $2,500, how many tonnes of pollutants would now be
dumped? What…
The primary source of air pollution in the small town of Smokey, Nevada is a nearby steel mill. The local environmental agency has decided that the mill needs to reduce its emissions because the town's
population is located directly downwind from it. Currently the agency is considering three different approaches to reducing pollution from the mill: a technology standard, an emission standard and an
emission tax.
Why might the owner of the mill prefer an emission standard to a technology standard that would produce the same level of emissions?
a
Because with emission standards the polluter is more flexible in selecting the technology that will minimize her abatement cost
Ob. Because polluters usually try to stick to their existing technology
O C. Because it has been proven to be easier to implement
O d. Because polluters, as all producers are suspicious about new technologies
You have the following supply and demand curves for an industry:
QSX = -100 + 3 * PX
for PX >= $40
QDX = 300 – 2 * PX
However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20).
a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes.
b) What efficient tax would move the competitive market to the efficient solution?
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