Chapter 12: Environmental Protection & Negative Externalities
The graph shows the marginal cost of abatement curve, which shows the extra cost to the firm of cleaning up an additional unit of pollution. When a pollution charge of $5 per unit emitted is imposed, how many units of pollution will the firm choose to clean up? units of pollution cleaned up: __________ When a pollution tax of $20 per unit emitted is imposed, how many units of pollution will the firm choose to clean up? units of pollution cleaned up: __________
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All are examples of the benefits of clean air and water EXCEPT
decreased prices for all goods and services.
From the examples below, determine which best describes an international externality.
Global warming fears rise as a result of increased pollution in Singapore.
A small city has an open space in the middle of downtown it can rent for concerts. Concerts are fun, but noise from the music and the concertgoers annoys some of the quieter citizens. The marginal private benefit (𝑀𝐵𝑃MBP), marginal private cost (𝑀𝐶𝑃MCP), and marginal external cost (𝑀𝐶𝐸MCE) for each number of concerts are given in the accompanying table: a. Absent government intervention, how many concerts are held downtown? b. After receiving several complaints from downtown residents, the city council decides to limit the number of concerts for which it will rent the downtown space. What is the socially optimal number of downtown concerts c. The city council's staff economist suggests that instead of imposing a strict limit on the number of concerts, the city council should implement a "noise fee." What should this fee be to result in the same number of concerts as in part b? d. Which statement most accurately describes the city council's action in part b? Which statement most accurately describes the staff economist's proposition in part c? The economist suggested
6 concerts 4 concerts $2000 per concert imposed an evironmental regulation. imposing a Pigouvian tax.
Classify the scenarios according to whether or not they describe a negative externality.
An example of a negative externality A factory emits pollution into the atmosphere as a by-product of production. A neighbor plays loud music that annoys the surrounding community. Not an example of a negative externality A person gets a flu shot and is therefore less likely to spread illness to others. A person with no allergies gets a mosquito bite from a disease-free mosquito. A donut shop emits a delicious smell into the air as a by-product of production.
The graph illustrates a nation's production possibility frontier (PPF) for timber production and spotted owl habitat. According to the graph, there are four possible combinations of timber production and spotted owl habitat, points A, B, C, and D. Which point best fits the situation where the country prioritizes increasing Gross Domestic Product (GDP) directly in relation to timber production? Which point best fits the situation where the country prioritizes environmental quality? Which point is currently not attainable? Which point is attainable but not efficient?
D A C B
Specialized electronic batteries, such as those for laptops, are hard to dispose of safely, yielding excess pollution when one gets thrown away. Suppose that producing these batteries creates an external cost of $150 per unit. The accompanying diagram depicts the market for these batteries in which these external costs are not internalized. Please adjust the appropriate curves to represent the market if the external costs are internalized.
Supply curve shifts left.
Distinguish the true statements from the false statements.
True Market failure occurs when either negative or positive externalities are present. Market failure is when market provision of a good results in an inefficient quantity. Government sometimes intervenes when market failure occurs. False Market failure occurs when negative externalities are present but not when positive externalities are present. Market failure occurs when positive externalities are present but not when negative externalities are present. Externalities are the only example of market failure.
Ronald Coase's ideas on property rights have helped economists and policymakers better understand environmental problems. Identify the true statement regarding Coase and property rights.
The assignment of property rights to someone is essential.
Command and control, sometimes called direct control, is when the government passes legislation specifically regulating an activity, typically because the activity leads to market failure. Classify each statement about this type of regulation as either true or false. Classify each statement.
True One option with command and control is for the government to decide on a specific amount of pollution that firms can legally emit. A limitation of a command and control is that firms have no incentive to remove additional pollution once they are within the legal pollution limits. Command and control is subject to political considerations. Under command and control, the government has the option to specify the technology that firms must use in production. False Command and control is more flexible than market‑based regulation. Command and control is always the best option when it comes to reducing the amount of pollution.
The four categories present potential responses to environmental problems. Place each response in the category that best matches it. It is possible that a category may end up with more than one scenario or none at all.
Command‑and‑control regulation (e.g., environmental standards) Government requires that auto manufacturers use a new, cleaner technology in producing cars. Government requires that auto manufacturers limit pollution to a specified threshold. Marketable or tradable pollution permits (e.g., cap‑and‑trade) Auto manufacturers are allowed to pollute as much as they wish, provided that they have purchased a sufficient number of pollution vouchers. Pollution or emissions tax An auto manufacturer is charged a fee per unit of pollution emitted into a river. Well‑defined property rights A steel mill pays nearby homeowners to compensate them for the noise they must put up with as a result of the steel manufacturing process.
Classify each statement as true or false.
True Social cost is the sum of private and external costs. When the production of a good results in pollution, private and social costs are different. Pollution is an example of an external cost. False The terms "social cost" and "external cost" are synonyms. When the production of a good results in pollution, private and social costs are the same. Wages are an example of an external cost. Private costs are costs that the firm is not obligated to disclose to the public.
Classify the statements as true or false.
True A pollution charge & a pollution tax are the same thing. Pollution taxes encourage firms to find innovative ways to remove pollution. False With a pollution tax, firms must pay a fine if they pollute more than the legally specified amount. Command-and-control regulation is typically more efficient than emission taxes. Firms generate the same level of pollution regardless of any pollution taxes that are imposed.
Indicate whether the statements are true or false.
True Marketable permits typically achieve pollution reduction at a lower cost than command-and-control regulation. The term "cap and trade" describes regulation by marketable permits. Marketable permits provide their owners with the right to pollute a specified amount. False Pollution taxes are more effective at reducing pollution than marketable permits. Compared with no regulation, regulation with marketable permits decrease firms' cost.
The graph shows the marginal social benefit curve (MB) and marginal social cost curve (MC) for pollution removal. For the 20th unit of pollution removal, For the 50th unit of pollution removal, Determine the socially optimal level of pollution removal. socially optimal pollution removal: __________ units
the marginal benefit exceeds the marginal cost. the marginal cost exceeds the marginal benefit. 46.23
The Matrixlandia Government wants to reduce the total amount of sulfur dioxide (SO2)(SO2) emitted by the electric industry by requiring both Modern Electric and Ancient Electric to reduce their emissions by 3 tons each, for a total SO2SO2 reduction of 6 tons. The table provides marginal cost (MC) of emissions reduction data. What will be the industry's total cost of reducing emissions by 6 tons (in hundreds of dollars)? Round your answer to two decimals. total cost: When the government enacts a cap and trade policy, Modern Electric decides to reduce its SO2SO2 emissions by 4 tons and trade (sell) one SO2SO2 emissions permit to Ancient Electric for $18.50$18.50 . With the permit from Modern, Ancient Electric needs to reduce its emissions by only 2 tons. What will be the industry's total cost for reducing emissions by 6 tons under the cap‑and‑trade policy (in hundreds of dollars)? Round your answer to two decimals. total cost under cap‑and‑trade policy: Using the information above, can a cap and trade policy help lower the total cost of pollution control?
$89 $82.75 yes
The Environmental Protection Agency is attempting to rule on whether pollution from greenhouse gas emissions endangers public safety. Among the many greenhouse gas polluters are cows emitting methane. Economists have devised a theory to help address this issue. Identify the statement that is true according to economic theory.
The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal; i.e., some pollution could be allowed.
