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in each case, indicate whether the statement as given is true/false/uncertain and explain why. Points will be given for the explanation of your answer only. Write your answers as completely as possible.

1.If a polluting firm (for example, a steel producer) is also a monopolist in its output market, the appropriate pollution tax should be even higher than the standard Pigouvian tax to discourage both the firm's pollution production and its monopolistic behaviour.

2. In the case on an ambient pollution problem, where the government sets a target level of ambient concentration, a cost-effective allocation of pollution is one where firms have the same marginal savings from emissions (or equivalently the same marginal cost of emissions reduction).

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Insha Fatima
Insha FatimaLv10
28 Sep 2019

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Related questions

In each case, indicate whether the statement as given is true/false/uncertain and explain why. Points will be given for the explanation of your answer only. Write your answers as completely as possible.

1.The problem of social choice is complicated by the wide range of individual perspectives (e.g., biocentrism, anthropocentrism, sustainability, etc.), but the more difficult problem is taking whatever individual preferences exist and coming up with a choice that balances the competing interests in determining what is best for society.

2. If a polluting firm (for example, a steel producer) is also a monopolist in its output market, the appropriate pollution tax should be even higher than the standard Pigouvian tax in order to discourage both the firm’s pollution production and its monopolistic behavior.

3.A firm facing a tax on pollution has a greater incentive for a firm to innovate (i.e., find new, more efficient ways to reduce pollution) than a firm facing a technology standard.

1. What is meant by the Pareto Efficiency of an allocation of resources? How unique is it for an allocation of resources to be Pareto efficient? What consideration is overlooked by Pareto efficiency? What does the First Theorem of Welfare Economics assert?

2. What is the distinction between a pecuniary externality versus a real (or technical) externality? Give an example of an interaction that constitutes a pecuniary externality. Give an example of an interaction that constitutes a real externality.

3. Imagine a price-taking producer whose production causes a real, negative externality. Draw a diagram to depict the economic outcome in this case, and how this differs from what is the socially optimal outcome. Also, depict Pigou's tax proposal to correct the externality.

4. Acme Charcoal is a charcoal producing company in Cleveland. Its total cost function is

C(QA) = 5 + 20QA + 2QA2, where QA is charcoal production per week in thousands of tons.

a) What is the formula for Acme's marginal cost function?

b) This is the nineteenth century, and no pollution control laws have yet been passed in the US. If charcoal sells in Cleveland for $420 per thousand tons, how much charcoal will Acme produce?

Clearview is an eyeglass company located near Acme Charcoal in Cleveland. Clearview's production of eyeglasses is negatively affected by the smoke from Acme's production of charcoal. Clearview's total cost function to produce eyeglasses is

C(QE) = 60QE + 2QE2 + 1.5QA where QE is Clearview's weekly production of eyeglasses and QA is Acme's weekly production of charcoal in thousands of tons.

c) What is the extra cost to Clearview from an additional thousand tons of charcoal production by Acme?

d) Eyeglasses sell for $160 per eyeglass. How many eyeglasses would you predict that Clearview produces per week?

e) How much profit do Acme and Clearview each earn in this situation?

f) What is the socially optimal level of production of charcoal by Acme? Explain the reason for your answer.

g) If Acme produced the level of production given in your answer to (f), how much would Clearview choose to produce?

h) Given your answer to (f) and (g), how much profit would Acme and Clearview each earn in that situation?

i) How might the outcome in (f) and (g) be brought about according to Pigou?

j) How might the outcome in (f) and (g) be brought about according to Coase if (I) the law makes Acme legally liable for damages resulting from his pollution, or (II) the law imposes no liability on Acme for the consequences of his pollution?

5. The Burnbright Electric Power Company has a coal-fired power plant located in Northern Utah. Consider three alternative scenarios.

(i) The air pollution generated by burning coal at the Burnbright plant doesnâ't cause any pollution, but the trucks that ferry coal to the plant on a daily basis cause traffic congestion for the residents of a small town nearby.

(ii) The air pollution generated by burning coal at the Burnbright plant causes severe haze to occur at the Grand Canyon National Park during the summer season.

(iii) The air pollution generated by burning coal at the Burnbright plant contributes to worldwide greenhouse gas emissions, which contribute to global warming over the next fifty years.

a) Do you think it is likely that Coasian bargaining will take care of the externality and generate a Pareto-efficient allocation of resources without any need for government intervention to control the externality? Answer for each case separately, and explain the reasons for your answer.

b) What are transaction costs? How might they enter the picture in each case? How could they affect the outcome of Coasian bargaining?

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?

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