MARGINAL ANALYSIS. This example problem goes over the degree of comfort experienced at different levels of clean water. The different peso value amounts are shown for every 20% increase in clean water. We want to find the optimum amount of clean water that we should have in this area, and it is important to remember that there is an optimal amount of pollution. Having 100% clean water is probably never going to be the solution. As we would expect, the more clean water we have in our economy, the higher the benefit we receive (we prefer clean water over dirty water). However, as we produce (or clean) more of the clean water we also incur a cost. As more clean water is present, the higher our costs. Note that benefits here is the same as utility. % of Clean Water Total Benefits Total Cost 0% 20% 50 45 85 90 120 155 Find the MC and MB. At what % of Clean Water do we have the best option to 40% 60% 80% 100% 100 155 160 180 be adopted?
MARGINAL ANALYSIS. This example problem goes over the degree of comfort experienced at different levels of clean water. The different peso value amounts are shown for every 20% increase in clean water. We want to find the optimum amount of clean water that we should have in this area, and it is important to remember that there is an optimal amount of pollution. Having 100% clean water is probably never going to be the solution. As we would expect, the more clean water we have in our economy, the higher the benefit we receive (we prefer clean water over dirty water). However, as we produce (or clean) more of the clean water we also incur a cost. As more clean water is present, the higher our costs. Note that benefits here is the same as utility. % of Clean Water Total Benefits Total Cost 0% 20% 50 45 85 90 120 155 Find the MC and MB. At what % of Clean Water do we have the best option to 40% 60% 80% 100% 100 155 160 180 be adopted?
Chapter14: Environmental Economics
Section: Chapter Questions
Problem 7SQ
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Transcribed Image Text:MARGINAL ANALYSIS. This example problem goes over the degree of comfort
experienced at different levels of clean water. The different peso value amounts
are shown for every 20% increase in clean water. We want to find the optimum
amount of clean water that we should have in this area, and it is important to
remember that there is an optimal amount of pollution. Having 100% clean water
is probably never going to be the solution.
As we would expect, the more clean water we have in our economy, the higher the
benefit we receive (we prefer clean water over dirty water). However, as we
produce (or clean) more of the clean water we also incur a cost. As more clean
water is present, the higher our costs. Note that benefits here is the same as utility.
% of Clean Water
Total Benefits Total Cost
0%
20%
50
100
45
40%
85
60%
155
90
80%
160
120
100%
180
155
Find the MC and MB. At what % of Clean Water do we have the best option to
be adopted?
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