2. In Almond country, farmers are experimenting with new genetically modified 'franken-bees' that are highly effectively at pollinating their nut trees. However, the bees also produce a corrosive form of honey that can damage the paint on cars. Biologists and transportation experts at UC Davis have estimated that each franken-bee hive creates an additional $50 worth of damage to local vehicles. Currently 200 franken-bee hives have been introduced into Almond country. Local motorists have demanded action to curb the franken-bee blight. They have demanded that farmers begin to remove them from the environment. The marginal cost of abatement is uncertain. Anti-bee groups claim costs will be low and estimate it will follow the function MC = -100+QA, where QA is the amount of abatement. Local farming groups argue that abatement will be much more costly than that and claim abatement costs will be MC = Q. You lead the agency responsible for regulating the bees. Local government officials have told you that you can cap the number of bee hives to deal with the situation. You can auction off a fixed amount of bee hive licenses to control the total number of bee hives in your area.

2. In Almond country, farmers are experimenting with new genetically modified 'franken-bees' that are highly effectively at pollinating their nut trees. However, the bees also produce a corrosive form of honey that can damage the paint on cars. Biologists and transportation experts at UC Davis have estimated that each franken-bee hive creates an additional $50 worth of damage to local vehicles. Currently 200 franken-bee hives have been introduced into Almond country. Local motorists have demanded action to curb the franken-bee blight. They have demanded that farmers begin to remove them from the environment. The marginal cost of abatement is uncertain. Anti-bee groups claim costs will be low and estimate it will follow the function MC = -100+QA, where QA is the amount of abatement. Local farming groups argue that abatement will be much more costly than that and claim abatement costs will be MC = Q. You lead the agency responsible for regulating the bees. Local government officials have told you that you can cap the number of bee hives to deal with the situation. You can auction off a fixed amount of bee hive licenses to control the total number of bee hives in your area.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $105 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 1 O O 2 ☐ ■ 3 O 4 5 QUANTITY (Tons of paper) ☐ 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ?
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2. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional tonne of paper imposes a constant external cost of $105 per tonne. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per tonne. (?) paper) PRICE (Dollars per tonne 700 630 560 490 420 350 280 210 140 70 0 0 ◇ 1 0 2 O 3 e O O The market equilibrium quantity is 3.5 O QUANTITY (Tonnes of paper) D Supply (Private Cost) Demand (Private Value) 7 Social Cost tonnes of paper, but the socially optimal quantity of paper production is 3 To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a tax tonne of…
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5. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 ¶¶ 1 O 2 O 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is 0 ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton