Principles of Microeconomics California Edition 2nd Edition
2nd Edition
ISBN: 9780393622089
Author: Dirk Mateer, Lee Coppock
Publisher: W. W. Norton
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Chapter 7, Problem 10SP
To determine
Explain whether the proposed solution makes the builder internalize the externality.
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With rental rates exceeding $3,000 per
square foot per year, retail space in Causeway
Bay, Hong Kong, is among the world's most
expensive. In 2011, the Town Planning Board
limited the height of future buildings in the
area to between 130 and 200 meters. Real
estate developer Hysan Group, which owns
nine properties in the area, asked the Board
to relax the limits, but the Board denied the
application.
What externality does the height restriction
resolve?
How would the Hysan Group benefit from
relaxing the height restrictions?
Should the restrictions on height be the same
throughout Hong Kong?
Within the remote nation of New Hope, total industrial production is currently creating a constant level of GDP that results in 2,600
million tonnes per year of carbon being released into the atmosphere. The government announced three years ago that a cap on
carbon emissions of 2,430 million tonnes would be imposed. This triggered the creation of new firms that began to plant large
plantations of trees grown specifically to absorb carbon from the atmosphere and thus earn carbon credits that they would sell to the
highest bidder. See table below for the supply of these earned carbon credits available when the program begins.
Quantity of
Credits
Price of
Carbon
Credits
Created
$ 1,125
40
1,225
70
1,325
100
1,425
140
1,525
170
1,625
200
1,725
230
a. What will be the initial price for carbon credits?
Initial price $
Next, assume that new technology enables the same level of GDP to be achieved with 5 percent less carbon emissions.
b. Now what is the price of carbon credits?
Price $
Apolluting firm dumps waste into the ocean during production. The loss in value due to damaging the fish stack is valued at $100,000 (you can think of this as lost
profits for fishing firms). The firm could eliminate the pollution at a cost of $60,000 a year. Choose the statement that describes the expected efficient outcome if the
polluting firm has property rights over the ocean.
The firm continues to pollute
The polluting firm pays the $60,000 to eliminate pollution
The fishing firms pay the $60,000 to eliminate pollution
The polluting firm and fishing firms share the $60,000 cost of eliminating pollution
Chapter 7 Solutions
Principles of Microeconomics California Edition 2nd Edition
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