🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Economics
1
answer
0
watching
249
views

You are a policy advisor responsible for air pollution in a region where there are only two chemical plants run by firm A and firm B. Firm A’s pollution abatement costs are 2x^3 , where x is a unit of pollution. Firm B is newer and has pollution abatement costs of 2x^2 . Assume that neither firm is initially abating pollution. The per-unit benefit to a unit of pollution abatement is a constant $600.

Question: Suppose your boss, an elected politician, decides that each firm must reduce pollution by exactly the same amount. Is this socially optimal?

Watch
1
answer
0
watching
249
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy. 4 points Question 15 Based on the diagram below, if the costs of hospital care are constant at $200 per day, and the individual does not incur any cost for each day for hospital care, then: the individual will stay 7 days and there will be no loss in economic surplus. the individual will stay 3 days and there will be no loss in economic surplus. the individual will stay 7 days and there will be lost economic surplus. the individual will stay 3 days and there will be lost economic surplus. 4 points Question 16 Economic research by Manning and colleagues suggests that people with deductible health insurance policies: spend substantially less on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially more on health care and have substantially better health outcomes compared to people with first-dollar insurance coverage. spend basically the same amount on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially less on health care and have no measurable difference in health outcomes compared to people with first-dollar insurance coverage. 4 points Question 17 An efficient program for reducing pollution is one for which: all polluters incur the same total costs of abatement. all polluters pay the same amount in taxes to the government. all polluters have the same marginal costs of abatement. all polluters reduce their emissions by the same amount. 4 points Question 18 Given the information on pollution abatement costs of the two firms shown below, which of the following is an efficient combination of pollution reduction? Quantity of pollution abatement Firm A's MC of abatement Firm B's MC of abatement 1 $30 $25 2 $35 $30 3 $40 $35 4 $45 $40 Firm A reduces by 1 ton and Firm B reduces by 1 ton. Firm A reduces by 2 tons and Firm B reduces by 3 tons. Firm A reduces by 4 tons and Firm B reduces by 1 ton. Firm A reduces by 3 tons and Firm B reduces by 2 tons. 4 points Question 19 All of the following are characteristics of perfectly competitive markets except: there are a large number of firms. productive resources are mobile. all firms produce a differentiated product. buyers and sellers are well informed. 4 points Question 20 An advantage of the auction method to pollution abatement is that: it is very expensive to firms. regulators can achieve a desired abatement target without having detailed knowledge of the abatement technologies available to polluters. it requires all firms to reduce by exactly the same amount. it assures that eventually society will reach a level of zero pollution emissions. 4 points Question 21 There are 2 firms each emitting 200 tons of a pollutant. Firm A's abatement costs are constant at $20/ton, and Firm B's abatement costs are constant at $40/ton. The government's goal is to reduce pollution by half. If the government auctions 200 one ton permits to the highest bidder: Firm A will purchase all 200 permits. Firm B will purchase all 200 permits. each firm will buy 100 tons. there is no way to know who the highest bidder for any permit would equal. 4 points Question 22 As a result of economies of scale, as output expands: fixed costs are decreasing. average total costs are decreasing. marginal costs are increasing. total costs are decreasing. 4 points Question 23 Generally, when countries open their borders to free trade: both domestic producers and consumers of imported goods gain. both domestic producers and consumers of exported goods gain. domestic producers of imported goods and domestic consumers of exported goods gain. domestic producers of exported goods and domestic consumers of imported goods gain. 4 points Question 24 Which of the following is the best example of a tariff? South Korea bans imports of U.S. beef because of safety concerns. The U.S. requires toys imported from China to undergo testing for lead content. The U.S. imposes a tax on sugar imported from Brazil. The U.S. restricts the quantity of cars imported from Japan. 4 points Question 25 A means-tested program is a benefit program: in which benefits decline as a recipient's earned income increases. in which all individuals must undergo health screening to be eligible for benefits. in which all recipients exclusively receive benefits through in-kind transfers. that only affects the average income of a specific segment of the population. 4 points Save and Submit Click Save and Submit to save and submit. Click Save All Answers to save all answers.

PART A

1. In which of the following situations is the Coase theorem likely to apply? Explain.

a. The neighbor who lives below you in the apartment building loves to play old John Denver records at loud volume early in the morning. In fact, his favorite song seems to be “Thank God I’m a Country Boy.” You hate old John Denver songs and this one in particular.

b. You have just moved to Beijing and quickly discover that you are allergic to smog. It causes you great pain in breathing and limits your ability to work. Furthermore, you have medical expenses related to treatment for its health effects on you.

c. Medical research in the 1990s has revealed a specific cause of birth defects related to a certain drug prescribed for pregnant women in the 1960s (thalidomide).

d. The water in the huge underground Ogalalla aquifer in the Great Plains region of the United States is being nitrate contaminated due to agricultural fertilizer use throughout the region. As a homeowner in this region, you find that your water must be treated in order to be safe for drinking.

2. One of the most striking aspects of cities in the former Soviet Union is the poor condition of public places. Streets, parks, libraries, museums, concert halls, and public gathering places of every description are all in very poor condition, revealing years of neglect and lack of maintenance.

Explain this phenomenon in light of the definition of property rights and the transition from socialism to a market economy.

3. Suppose that the marginal benefit associated with corn production is MB = 2.5. The marginal private cost of production is MPC = 2 + 0.1Q, where Q measures bushels of corn produced in thousands. The marginal damages caused by pollution in corn production are given by MD = 0.05Q.

a. Compute the privately optimal output and the socially optimal output.

b. Compute new solutions for an increase in MB to MB = 3. Explain what has happened and why. c. Demonstrate the effects of an increase in MD to MD = 0.075 compared to the solutions in part a.

4. Policy analysts in the Department of Natural Resources have estimated that the marginal benefits from water pollution abatement are given by the function MB ¼ 0.90 À 0.03A, where A is a measure of the abatement intensity. Industry experts have estimated that the marginal cost of abatement activity is MC = 0.30 + 0.09A.

a. Determine the optimal level of abatement activity.

b. Explain what happens when new technology reduces the marginal cost of abatement to MC = 0.25 + 0.06A. 5. Consider the pollution reduction mechanism known as emissions trading. a. What is the economic rationale for permitting emissions trading?

b. If the objective is to minimize the cost of emissions reductions, explain what economic principle should be followed in allocating emissions reductions between two countries.

c. Suppose the marginal cost curves for emissions reductions in countries A and B are MCA = 10 + 0.04qA and MCB = 5 + 0.02qB. What is the most efficient allocation of an emission reduction of q0 between the two countries? (Assume that the emissions reductions of the two countries must add up to the total emissions reduction: q0 = qA = qB.)

PART B

1. Which of the following do you consider pure public goods? Private goods? Why?

a. Wilderness areas

b. Satellite television

c. Medical school education

d. Public television programs

e. Automated teller machine (ATM)

2. Indicate whether each of the following statements is true, false, or uncertain, and justify your answer.

a. Efficient provision of a public good occurs at the level at which each member of society places the same value on the last unit.

b. If a good is nonrival and excludable, it will never be produced by the private sector.

c. A road is nonrival because one person’s use of it does not reduce another person’s use of it.

d. Larger communities tend to consume greater quantities of a nonrival good than smaller communities.

3. Tarzan and Jane live alone in the jungle and have trained Cheetah both to patrol the perimeter of their clearing and to harvest tropical fruits. Cheetah can collect 3 pounds of fruit an hour and currently spends 6 hours patrolling, 8 hours picking, and 10 hours sleeping.

a. What are the public and private goods in this example?

b. If Tarzan and Jane are each currently willing to give up one hour of patrol for 2 pounds of fruit, is the current allocation of Cheetah’s time Pareto efficient? Should he patrol more or less?

4. The aircraft company Airbus receives much of its funding from European governments. Airbus recently decided to build a new 550-seat mega-jetliner, with duty-free shopping courts and restaurants on board. The project has experienced production delays as well as cost overruns, and it now appears that there will be very few buyers. An industry expert says the idea from the start was “nonsense”

Is public sector production of aircrafts ever justified?

Explain why it could lead to the apparently ill-advised decision to build the mega-jetliner.

5. Suppose that there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional lighthouse is $100. The marginal benefit to Zach of each additional lighthouse is 90 − Q, and the marginal benefit to Jacob is 40 − Q, where Q equals the number of lighthouses.

a. Explain why we might not expect to find the efficient number of lighthouses along this coast.

b. What is the efficient number of lighthouses? What would be the net benefits to Zach and Jacob if the efficient number were provided?

1. Another term for an investment good is

A) interest
B) savings
C) capital
D) rent
E) production

2. The opportunity cost of producing capital is

A) decreased current production of consumption goods
B) increased future production of consumption goods
C) the amount of roundabout production
D) abundant capital accumulation
E) the decreased amount of future capital available

3.

A marginal revenue product curve shows the change in

A) total revenue caused by a one-unit change in output, other things constant
B) total revenue caused by a one-unit change in an input, other things constant
C) total product caused by a one-unit change in output, other things constant
D) total product caused by a one-unit change in an input, other things constant
E) total revenue product caused by a one-unit change in the price of the output, other things constant

4.

Marginal revenue product for a price taker equals

A) MP x P
B) MP/MRC
C) MP x MRC
D) MRC/MP
E) MP/P

5.

Interest provides an incentive for households to defer current consumption

A) True
B) False

6.

An increase in the interest rate tends to increase the demand for loanable funds.

A) True
B) False

7.

Generally, the longer the maturity on a bond, the lower the interest rate.

A) True
B) False

8.

Corporations can obtain investment funds by

A) buying government securities
B) selling stock
C) increasing dividends
D) purchasing more capital
E) buying back stock

9.

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

A) True
B) False

10.

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

A) True
B) False

11.

When a firm is no longer able to reduce its long-run average cost by expanding, it has achieved its minimum efficient scale of production.

A) True
B) False

12.

If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product.

A) True
B) False

13.

Publications such as Consumer Reports magazine

A) increase the optimal amount of information gathered
B) reduce the optimal amount of information gathered
C) reduce the amount of common knowledge
D) raise the marginal benefit of information curve
E) make consumers perfectly informed

14.

The winner's curse is more likely when the value of a good at auction is uncertain.

A) True
B) False

15.

When a seller knows more about the condition of a used car than the buyer does, the information is said to be asymmetric.

A) True
B) False

16.

The three kinds of government regulation designed to alter or control firm behavior are:

A) Antitrust policy, lobbying, and social regulation
B) Economic regulation, antitrust policy, and lobbying
C) Social regulation, lobbying, economic regulation
D) Social regulation, economic regulation, and antitrust policy
E) Social regulation, antitrust policy, fiscal policy

17.

A monopoly is likely to charge a higher price than an otherwise similar competitive industry would be.

A) True
B) False

18.

Public policy can help achieve more efficient use of an economy's resources by eliminating all monopolies.

A) True
B) False

19.

Government attempts to prohibit monopolization of a market are known as

A) antitrust regulation
B) economic regulation
C) social regulation
D) anticompetitive regulation
E) Herfindahl regulation

20.

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

A) MR = MC
B) P = MC
C) MC = quantity demanded
D) P = AC
E) MR = AC

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in