MICROECONOMICS(LL)COMPANION
21st Edition
ISBN: 9781260713541
Author: McConnell
Publisher: MCG
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Chapter 4, Problem 7RQ
To determine
True or false.
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Suppose the United States has two utilities, Commonweath Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year. However, the marginal cost of
reducing a ton of pollution for Commonwealth Utilities is $200 per ton and the marginal cost of reducing a ton of pollution for Consolidated Electric is $225 per ton. The government's goal is to cut
sulfur dioxide pollution in half (by 20 million tons per year).
If the government issues 10 million tradable pollution permits to each utility, what will be the cost of eliminating half of the pollution to society?
million per year.
Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $
Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents
are trying to determine how large, in acres, they should build the public park. The following table shows each
resident's willingness to pay for each acre of the park.
Acres
1
2
3
4
5
6
7
Sophia
0 acres
O1 acre
2 acres
10
8
6
3
1
O3 acres
0
Willingness to Pay (Dollars)
Amber
Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to
split the cost of building the park equally. If the residents vote to determine the size of park to build, basing
their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the
largest park size for which the majority of residents would vote "yes?"
24
18
14
8
6
4
2
Cedric
6
5
4
3
2
1
0
Kenji and Paolo are considering contributing toward the creation of a building mural. Each can choose whether to contribute $300 to the building mural or to keep that $300 for a new suit.
Since a building mural is a public good, both Kenji and Paolo will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.70 of benefit. For example, if both Kenji and Paolo choose to contribute, then a total of $600 would be contributed to the building mural. So, Kenji and Paolo would each receive $420 of benefit from the building mural, and their combined benefit would be $840. This is shown in the upper left cell of the first table.
Since a new suit is a private good, if Kenji chooses to spend $300 on a new suit, Kenji would get $300 of benefit from the new suit and Paolo wouldn't receive any benefit from Kenji's choice. If Kenji still spends $300 on a new suit and Paolo chooses to contribute $300 to the…
Chapter 4 Solutions
MICROECONOMICS(LL)COMPANION
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- Deborah and Janet are considering contributing toward the creation of a building mural. Each can choose whether to contribute $200 to the building mural or to keep that $200 for a new sult. Since a bullding mural is a public good, both Deborah and Janet will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Deborah and Janet choose to contribute, then a total of $400 would be contributed to the building mural. So, Deborah and Janet would each receive $320 of benefit from the building mural, and their combined benefit would be $640. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Deborah chooses to spend $200 on a new suit, Deborah would get $200 of benefit from the new suit and Janet wouldn't recelve any benefit from Deborah's choice. If Deborah still spends $200 on a new suit and Janet chooses to contribute…arrow_forwardDmitri and Jake are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water fountain or to keep that $300 for a pool table. Since a water fountain is a public good, both Dmitri and Jake will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.70 of benefit. For example, if both Dmitri and Jake choose to contribute, then a total of $600 would be contributed to the water fountain. So, Dmitri and Jake would each receive $420 of benefit from the water fountain, and their combined benefit would be $840. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Dmitri chooses to spend $300 on a pool table, Dmitri would get $300 of benefit from the pool table and Jake wouldn't receive any benefit from Dmitri's choice. If Dmitri still spends $300 on a pool table and Jake chooses to contribute…arrow_forwardBeth and Eleanor are considering contributing toward the creation of a building mural. Each can choose whether to contribute $400 to the building mural or to keep that $400 for a weekend getaway. Since a building mural is a public good, both Beth and Eleanor will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.60 of benefit. For example, if both Beth and Eleanor choose to contribute, then a total of $800 would be contributed to the building mural. So, Beth and Eleanor would each receive $480 of benefit from the building mural, and their combined benefit would be $960. This is shown in the upper left cell of the first table. Since a weekend getaway is a private good, if Beth chooses to spend $400 on a weekend getaway, Beth would get $400 of benefit from the weekend getaway and Eleanor wouldn't receive any benefit from Beth's choice. If Beth still spends $400 on a weekend getaway and…arrow_forward
- There are two firms, A and B emitting sulfur dioxide. In total, they emit 100 tons of sulfur dioxide. The EPA wants to reduce sulfur dioxide emissions by 60 tons so that the final level of emissions in only 40 tons. The table below shows the emissions and cost of abatement for each firm. If the EPA were to issue 40 tradeable pollution permits, 20 to each firm, where each pollution permit allows 1 ton of emission, what would the final allocation of permits across the two firms be if they traded permits with esch other? sO, Emission Cost per ton of so, reduction Company Firm A 30 tons $1,000 per ton Firm B 70 tons $800 per ton Total Emissions 100 tons Select an answer and submit. For keyboard navigation, use the up/down arow keys to select an answer. a Each firm will have 20 permits. b. Firm A will have all 40 permits. Firm A will have 30 permits and Firm B will have 10 permits. Firm A will have 10 permits and Firm B will have 30 permits.arrow_forward7. Correcting for negative externalities - Taxes versus tradablepermits Nuclear facilities emit radioactive waste as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of electricity 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 radioactive waste). The following graph shows the daily 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. you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Note: Once PRICE(Dollars perton) 23 8 70 49 42 35 21 14 7 0 Demand 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Graph Input Tool Daily Demand…arrow_forwardAcres Sophia Amber Cedric 1 $12 $24 $6 2 8 18 3 10 4 3 8 3 1 6. 2 6 4 1 7 2 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric (see the Table). The three residents are trying to determine how large, in acres, they should build the public park. Suppose the cost to build the park is $12 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to builo basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?" 1 acre 2 acres 3 acres 4 acresarrow_forward
- Table 10-5 The following table shows the marginal costs for each of 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. Firm Marginal Cost to Eliminate (Dollars) First Unit Second Unit Third Unit Fourth Unit A 54 67 82 107 В 57 68 86 108 54 66 82 107 D 62 73 91 111 Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? a. $83 b. $68 C. $67 d. $81 0= Icon Keyarrow_forward7. Correcting for negative externalities - Taxes versus tradablepermits 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 negative externality 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 the daily 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. PRICE (Dollars per ton) 90 81 72 54 45 36 27 18 9 0 0 f 35 70 āt Demand 105 140 175 210 245 280 315 350 Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton)…arrow_forwardVan and Amy each rent one unit of a two-unit apartment building. The building has two separate furnaces located between the two apartments. The renters each control and pay for the heat their furnaces generate and would choose to increase the temperature of their apartments by 45 degrees if the other never turned on their furnace, given that the marginal private benefit (MB) of the 45th degree is equal to the marginal cost (MC) of 1 degree of heat (assume that the MC of heat is constant and that the MB of heat is decreasing). However, each degree of heat paid for by one not only raises the temperature in that apartment by a degree but also raises the temperature in the other apartment by half a degree. As a result, if Amy were to buy 40 degrees of heat, then Van would need to purchase only benefit of the final degree was equal to the marginal cost. Use the blue line (circle symbol) to plot Van's best-response function (BRF) on the following graph, with the total amount of heat he will…arrow_forward
- Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. The figure below shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Marginal benefit and marginal costs in $ A + B A + B + C B+C Po 0 8 C B A Marginal abatement cost 9 Marginal benefits of reduction 10 11 12 12.5 Reductions in toxic fumes emissions (millions of tons per year) Suppose the emissions reduction target is currently established at 8 million tons. What is the area that represents the cost of eliminating an additional 1 million tons?arrow_forward3. Voluntary contributions toward a public goodLarry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit.Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table.Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and…arrow_forwardBack to Assignment Attempts Keep the Highest / 3 7. Correcting for negative externalities - Taxes versus tradable permits 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 negative externality 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 the daily 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 Tool (? Daily Demand for Pollution Rights 90 81 I Price (Dollars per ton) 72 Quantity Demanded (Millions of tons) 450…arrow_forward
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