Final Exam

If QS = -10 +1/2P, the slope of supply when conventionally graphed is 1/2

False, is 2

If the price level is such that quantity supplied exceeds quantity demanded, there is excess demand, or a shortage in the market.

False, would be a surplus

Product Charge

-A fee added to the price of a pollution-generating product based on its quantity or some attribute responsible for pollution •Fees are added to price of pollution-generating product -Gas tax -State taxes on fertilizers -State advance disposal fees on tires, motor oil, paint, batteries

Emission (Effluent) Charge

-A fee imposed directly on the actual discharge of pollution. --A fee paid by a company or H/H to discharge waste to a sewer or emit polluting gases into air •Assigns a price to pollution through a tax -Based on the quantity and toxicity of discharged pollutants. -Polluter's response is not restricted to an output reduction. -Forces polluters to confront the damages, pay for them, making them part of its production costs.

List and explain with examples, the different types of market-based instruments. For each instrument, identify an advantage and disadvantage of using such instrument. (Please be sure to know how to draw, label and analyze the graphs for each of the market-based instruments)

-Pollution charges -2 ways implemented: Product charge, emission charge -Product Charge: Added fee to a product that causes pollution -Subsidies -Deposit/refund systems -Pollution permit trading systems

Using an appropriate graph, describe the two distinct problems that arise in most MSW service markets. In order words, describe the two problems that leads to inefficient resource allocation in most MSW service market.

1. Flat fee pricing of MSW services -Pricing of MSW services does not reflect the rising MPC associated with increases in production level --marginal price of zero --does not reflect rising MPC: ignores positive and rising MPC of MSW services 2. Production of MSW services leads to negative externalities -Private market equilibrium, where MPB=MPC do not yield an efficient sollution -Resource misallocation may occur if production of MSW Services gives rise to negative externalities -lead to overallocation of resources to MSW services

Distinguish between the three market-based instruments that has been used in recent years to reduce the problems associated with MSW

1. back-end or waste end charges •A fee imposed at the time of disposal based on the quantity of waste generated (PAYT) -Unit may be measured either by weight or by volume -It avoids the market distortion caused by a flat fee pricing scheme. •To achieve efficiency -The waste-end charge must be set to cover the MSC at the efficient equilibrium 2. Front-end or retail disposal charge •A fee imposed on the products at point of sale -To encourage pollution prevention through source reduction -Motivates manufacturers to use product designs and packaging that are more environmentally responsible 3. Deposit/refund system •Up-front fee imposed on a product at point of sale (like retail disposal charge) -Fee is returned if consumer takes proper action to avoid environmental damages

Advantage and disadvantage of product charge

Advantage: The Pigouvian tax forces firms to lower production to the efficient level Disadvantage: the tax however is difficult to impose in practice -It is difficult to identify the dollar value of MEC at QE and hence, the level of the tax In order to abate pollution, the model implicitly allows only for an output reduction

Describe how federal responsibilities differ from state responsibilities for nonhazardous waste within the Resource Conservation and Recovery Act (RCRA).

Federal Responsibilities: 1. Provide financial and technical assistance to states 2. Set minimum criteria for sanitary landfill disposal and incineration facilities 3. Support the development of markets for recycled products States: -develop plans that meet federal requirements 1. Pass laws asking local governments to set up recycling plans 2. Mandate specific recycling rates for local governments 3. Provide grant money to cities and towns to set up waste management programs

Is it possible for an individual's valuation of an environmental commodity to include both user value and existence value? Explain briefly.

It is possible for an individual's evaluation of an environmental commodity to include both user value and existence value. This is because a good can give value directly, like utilizing it physically, which is user value. One can also value it indirectly as well, like valuing it because it exists. An example of this is a lake, I can value it directly because I like to fish (user value) I can also value it indirectly due to the aesthetic benefit of it (existence value).

Identify three factors each that shift the demand and supply curve of MSW. Then use a model of MSW describe how each of these factors affect the demand curve and supply curve, price (tipping fee) and quantity of municipal solid waste services.

Supply: 1. Expenses of operating a fleet of disposable trucks 2. labor cost 3. managing a landfill or incinerator 4. land availability and government regulations Demand: 1. The price of alternatives to MSW 2. Income of a community 3. Taste and Preferences

Technical efficiency

Technical Efficiency refers to production decisions that generate maximum output given some stock of resources, so it achieves maximum output while reserving natural resources, minimizing residuals, and minimizing cost

interpretation of Marginal External Benefit (MEB)

The MEB measures the external benefit to society associated with the consumption of a good.

Diagram a general model of MSW management services. Show the simultaneous effect of the federal restrictions on landfills and rising consumer awareness of the benefits of "green packaging." Assuming a private competitive market, predict the effect on the price and quantity of MSW services.

The landfill restrictions will shift the supply curve to the left because some landfills will be forced to close. Green packaging will cause consumers demand to lower. While equilibrium quantity will fall, equilibrium price will will be indeterminant.

T or F: Conventionally, the graph of demand uses the inverse from of the demand function, which is P=f(QD)?

True

T or F: Two characteristics of a private good are rivalry in consumption and excludability?

True

When a profit-maximizing firm increases output to Q=50, its MR=$100 and MC=$124, meaning the total profit falls by $24, so the firm should contract production

True

Suppose that in the market for bottled water, the market supply is Qs=14+20P and the market demand is Qd=74-10P, then the equilibrium price is a) $2 b) $54 c) $6 d) none of the above

a) $2

In a deposit-refund system, a) the refund component compensates the consumer for proper waste disposal or recycling activities b) the deposit component should be set equal to the MSC of illegal waste production c) the costs of monitoring and enforcement are higher than if a pollution charge were used d) actual polluters are not penalized for decisions that pose a risk to the environment

a) the refund component compensates the consumer for proper waste disposal or recycling activities

Allocative efficiency

allocative efficiency deals with the proper allocation of resources among alternative uses. Allocative efficiency looks at the costs and benefits and uses marginal analysis to make decisions. Essentially, is compares marginal cost and marginal revenue.

If a firm is producing at an output level such that the MR is $550 and the MC is $780, a) the firm incurs a total cost of $230 b) the firm should contract production because marginal profit is less than zero c) Mπ is +230 d) the firm should expand its output level because its total revenue is rising by $550

b) the firm should contract production because marginal profit is less than zero

Available data on the generation of MSW in the United States indicates that a) durable goods represent the largest proportion by weight of all product groups b) plastics are the largest proportion by weight across all material groups c) containers and packaging are the largest proportion by weight of all product groups d) none of the above

c) containers and packaging are the largest proportion by weight of all product groups

The demand for MSW services a) represents the production decisions of firms providing disposal or incineration services b) would likely be lower for higher income households c) would tend to be lower for more environmentally aware consumers d) all of the above e) none of the above

c) would tend to be lower for more environmentally aware consumers

If market demand for solar panels is specified as Qd=100-2.5P, the vertical intercept of demand, as conventionally graphed is a) +100 b) -100 c)-2.5 d)+40

d) +40

Which of the following statements about a deposit/refund systems is INCORRECT? a) Most deposit/refund systems in the United States are used in beverage containers and lead-acid batteries b) Some nations use deposit/refund systems for automobile bodies c) The deposit is imposed at the time of purchase like a retail disposal charge d) To be a valid system, the refund must be exactly equal to the deposit

d) To be a valid system, the refund must be exactly equal to the deposit

In terms of nonhazardous waste, the federal government is responsible for a) every aspect of nonhazardous waste management b) setting recycling rates for each state c) establishing markets for recovered MSW d) setting minimum criteria for sanitary landfills and other land disposal sites

d) setting minimum criteria for sanitary landfills and other land disposal sites

If a firm makes production decisions such that it achieves maximum output from a fixed stock of resources, this means that this firm is a) achieving allocative efficiency b) earning a positive economic profit c) earning a normal profit d) technically efficient

d) technically efficient

The supply curve is positively sloped because a) profit levels always rise with output b) MC rises as Q rises, so firms must charge a higher P as Q rises c) as Q increases, TC rises proportionally faster than Q, so price must rise with output d) none of the above e) both b and c are correct

e) both b and c are correct which are b) MC rises as Q rises, so firms must charge a higher P as Q rises c) as Q increases, TC rises proportionally faster than Q, so price must rise with output

Emission (Effluent) Charge multiple polluter case

§Polluter 1: Abate up to the point where MAC1 = MT §2.5A1=$5; A1 = 2 §Incurs TAC of =1.25*2^2 = $5 §Incurs total tax of = t(Ast-A0) = t(10-2) = 5*8 = 40 §Polluter 2: abate up to the point where MAC2 = MT §0.625A2=$5 ; A2= 8 §Incurs TAC of = 0.3125(8)^2 = $20 §Incurs total tac of =t(Ast-A0) = t(10-8) = 5*2 = 10 §Value for the Region §Total Abatement level = 10 units §Total Abatement cost = $20 + $5 = $25 §Total Tax Payment = $40 + $10 = $50

Pollution Charge

•A fee charged to the polluter that varies with the quantity of pollutants released. -Based on "Polluter-Pays Principle" -Internalize the cost of environmental damages by pricing the pollution-generating activity •Pollution charge can be implemented as a -Product charge Effluent or emission charge

Environmental Subsidy

•Alternative market approach to reducing environmental damage -Polluters are payed to not pollute through an environmental subsidy. •Two major types of subsidies -Abatement equipment subsidies -Pollution reduction subsidies. •Abatement equipment subsidies -Payment aimed at lowering the cost of abatement technology -It is a reward (incentive) for not engaging in polluting activities. -Implemented through grants, low-interest loans, or investment tax credits -It gives polluters an economic incentive to invest in abatement technology.

Pollution Permit Trading Systems

•Establishes a market for rights to pollute by issuing tradeable pollution credits or allowances •Can be implemented through the use of -Pollution credits are issued for emitting below a standard -Pollution allowances indicate how much can be released

Deposit-Refund Systems

•It imposes an up-front (front-end) charge (deposit) to pay for -Potential damages and returns that charge (refund) when the product is properly disposed off or recycled oBeverage containers, used tires and lead-acid batteries. •Designed to force the potential polluter to account for both -The MPC and the MEC of improper waste disposal, should that activity be undertaken.

List some of the limitations associated with benefit-cost analysis

•Measurement Problems -Estimation is particularly problematic due to intangibles -Implicit costs -Social discount rate selection •Equity Issues -Distribution of benefits and costs may be skewed

Emission (Effluent) Charge single polluter case

•§Note: MAC line: Cost of abatement ; MT Line: Cost of taxation § §A firm will compare MAC to MT and choose whichever is cheaper §At any A < A0: Abate because MAC < MT §TAC: 0aA0 §MT: 0taA0 §At any Ast > A > A0: Pay Tax because MAC > MT §TAC: A0acbAst §MT: m0abAst §Total Cost to Polluter: 0abAst §Part cleaned up urself: 0aA0 §Part pay Tax: A0abAst