supposed to utilities, peoples electric and municipal Energy, each produce 100 tons of pollution per year. The government has a goal of eliminating half the pollution, and, intern, provides 50 pollution permits to each utility. A pollution permit is required to legally produce a ton of pollution. However, the two utilities are allowed to trade permits. Suppose the cost of illuminating 1 ton of pollution for peoples electric is $300 and the cost of eliminating a ton of pollution for municipal Energy is $150. The total cost of each utility eliminating 50 tons of pollution is $?

supposed to utilities, peoples electric and municipal Energy, each produce 100 tons of pollution per year. The government has a goal of eliminating half the pollution, and, intern, provides 50 pollution permits to each utility. A pollution permit is required to legally produce a ton of pollution. However, the two utilities are allowed to trade permits. Suppose the cost of illuminating 1 ton of pollution for peoples electric is $300 and the cost of eliminating a ton of pollution for municipal Energy is $150. The total cost of each utility eliminating 50 tons of pollution is $?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 10PA

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Similar questions

In the Land of Purity, there is only one form of pollution, called gunk. Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between K and L, can you say which one is better and why? In the choice between K. and N, can you say which one is better, and why? If you had to guess, which choice would you think is move likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?
Give an example of a positive externality and an example of a negative externality.
Consider the case of global environmental problems that spill across international borders as a prisoners dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can cheese whether to protect the environment, at a cost of 10, or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of 16, but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of 32, which is divided equally between the two centuries. In Table 12.10, fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
Do market demand curves reflect positive externalities? Why or why not?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
Is zero pollution an optimal goal? Way or why not?
Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not?
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.