marginal benefit to polluter (euros) 12 MB₂ 10 8 MBA limit, an emissions • quant. of "pollutions (tons) q 10 6 MBG -Tax a) let's say that each plant is free to emit as much as it wants, without any government interference. Referring to the graph on the left, what will be the total amount of emissions produced in this economy? (tons) b) what is the marginal benefit of emissions to firm B corresponding to the answer in part a, that is, when the firm is allowed to produce emissions in the absence of government intervention? c) now let's say the government limits the emissions of each plant at 4 tons. The marginal benefit of 4 tons of emissions to plant A is 2 euros. Referring to the graph on left, what is the welfare loss to plant A from the limit imposed by the government? (euros) d) now let's say the government sets a unit tax on emissions of 6 euros. Under this tax, plant B will produce 6 tons of emissions and plant A will produce 2 tons of emissions. Referring to the graph on the right, what is the total net welfare from the imposition of the tax? (euros) e) which policy results in lower welfare losses for the economy as a whole, a unit tax of 6 euros or a regulatory limit of 4 tons of emissions for both plants? 1) regulatory limit 2) tax

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 13SCQ: A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals...

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Consider an economy with 2 plants, A and B, whose operations produce emissions. The graphs show the marginal benefits (MB) to each plant from its emissions on the y-axis (in Euros) and the quantity of emissions in tons on the x-axis. The graph on the left represents the case when the government imposes a limit on emissions. The graph on the right represents the case when the government imposes a tax on emissions.

marginal
benefit to
polluter (euros)
10
8
limit
MB₂ emissions
MOA
an
•quant of
"pollutions (tous)
10
6
MBG
MBA
Тах
a) let's say that each plant is free to emit as much as it wants, without any government
interference. Referring to the graph on the left, what will be the total amount of emissions
produced in this economy? (tons)
b) what is the marginal benefit of emissions to firm B corresponding to the answer in part a, that
is, when the firm is allowed to produce emissions in the absence of government intervention?
c) now let's say the government limits the emissions of each plant at 4 tons. The marginal
benefit of 4 tons of emissions to plant A is 2 euros. Referring to the graph on left, what is the
welfare loss to plant A from the limit imposed by the government? (euros)
d) now let's say the government sets a unit tax on emissions of 6 euros. Under this tax, plant B
will produce 6 tons of emissions and plant A will produce 2 tons of emissions. Referring to the
graph on the right, what is the total net welfare from the imposition of the tax? (euros)
e) which policy results in lower welfare losses for the economy as a whole, a unit tax of 6 euros
or a regulatory limit of 4 tons of emissions for both plants? 1) regulatory limit 2) tax

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