3. If given the option to reduce pollution using regulation (equal reduction by each firm) or tradeable permits (between low and high-cost firms), which would an economist choose? Explain.
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- The Coase Theorem says that if people negotiate the right perform activities that cause externalities, they can always arrive at efficient solutions to problems caused by externalities. Use an example to explain why the people that are harmed are willing to pay to stop pollution.Suppose the the government has set the trading price of a permit at $126 per permit. Complete the following table with the action each firm will take at this permit price, the amount of pollution each firm will eliminate, and the amount it costs each firm to reduce pollution to the necessary level. If a firm is willing to buy two permits, assume that it buys one permit from each of the other firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.) Firm Firm A Firm B Firm C Initial Pollution Permit Allocation (Units of pollution) 2 2 2 Regulation Versus Tradable Permits Action Proposed Method Regulation Tradable Permits Final Amount of Pollution Eliminated (Units of pollution) Cost of Pollution Reduction (Dollars) Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need to get information from previous tasks to complete this table.) Total Cost of Eliminating…Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 90 125 180…
- Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 130 165 220…There is a saying that a person worried about the source of his next meal is not much concerned about the level of pollution in the nearby stream. How does this saying reflect that pollution is a first world, as opposed to third world, problem? Put differently, does the evidence – both over time within economies and across economies at a given time – indicate that the pollution problem gradually cures itself as economies become more prosperous?Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society's marginal benefit from pollution reduction is given by MB = 590- 3Qtot, where Qtot is the total reduction in pollution. The socially optimal level of firm A's pollution reduction is Hint: Type integers. reduction is The socially optimal level of firm B's pollution
- Explain: “Without a market for pollution rights, dumping pollutants into the air or water is costless; in the presence of the right to buy and sell pollution rights, dumping pollutants creates an opportunity cost for the polluter.” What is the significance of this opportunity cost to the search for better technology to reduce pollution?Provide a reason why the marginal damages from some emissions may be increasing with the level of emissions (like in the figure above). Suppose the unregulated level of emissions is E3. What area(s) represent the total damages from unregulated emissions? Suppose emissions levels drop from E3 to E1. What area(s) represent the total benefits from the emissions reduction from E3 to E1? What point denotes the marginal damage from emissions at E2?Economists Kenneth Chay and Michael Greenstone found that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths. Although this and other studies provide compelling evidence of the link between pollution and infant health, it is not clear that reductions from the much lower levels of ambient pollution today would have the same effect. Which of the following reasons could explain this? A. Today, the level of pollution is much higher. Therefore, it will take a much larger reduction in air pollution to reap benefits similar to those in 1970. B. When levels of pollution are high, the marginal benefit of reducing pollution also is high. It follows therefore that the benefit of reducing air pollution in 1970 would be much higher than the benefit from a proportional reduction in air pollution today when the level of pollution is much lower. C. When levels of pollution are…
- Suppose that there is an environmental policy that could reduce the average concentration of a toxic substance to which 3 million people are exposed. Suppose that as a result of the reduction in exposure the risk of death reduces from 1 out of 50,000 to 1 out of 60,000. a. What is the expected number of lives that could potentially be saved from this environmental policy? a. If each of the 3 million people who are exposed is willing to pay $8 for this reduction in risk, then what is the implied value of a statistical life that is potentially saved as a result of this environmental policy? a. Your boss asks you to estimate what must be the maximum cost of such an environmental policy. Provide a justification for the upper limit on the cost of such an environmental policy.3. If certain apple growers are using a cancer-causing pesticide on apple trees, explain how the harm caused by the pesticide can be internalized? How will the market equilibrium change?Chapter 10 The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C ☐☐ Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 1 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, i 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would nee reduce its pollution by only 1 unit…