3. The shapes of the marginal benefit and cost curves indicate a) as pollution is reduced, the total benefits of pollution reduction eventually fall. b) as pollution is reduced, the total benefits of pollution reduction continue to rise. c) as pollution is reduced, each additional unit brings fewer and fewer benefits. d) as pollution is reduced, each additional unit costs less and less to reduce. e) band c.
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- I. TRUE/FALSE/UNCERTAIN Answer each question and provide a concise explanation. If any word/term is underlined, give the definition. 1. [5 POINTS] T/F/U. All externalities lead to inefficient market outcomes. 2. [5 POINTS] Consider two firms [A, B], each with a fixed number of tradeable pollution permits. T/F/U. If MCB > MCA, the total cost of pollution abatement can be reduced if Firm B sells permits to Firm A. 3. [5 POINTS] Climate change experts are especially concerned about tipping points, thresholds that lead to catastrophic and irreversible damage. T/F/U. If evidence suggests we are near a tipping point, the government should impose a high carbon tax. 4. [5 POINTS] T/F/U. Highways and Cable TV are considered impure public goods for the same reason. 5. [5 POINTS] California's Prop 13 sharply lowered property tax rates in many of the state's counties. T/F/U. The fact that home prices rose immediately after the law shows that voters expected little to no change in public goods and…3. Suppose the EPA wants to reduce pollution to the socially optimal level. Based on the data in the table below, what is the optimal level of pollution? Total cleanup Total Total (tons) Benefit Cost 50 2 85 18 3 115 28 4 140 39 5 160 51 179 63 7 197 76 8 214 90 230 105 10 245 120 11 259 137 12 273 156 13 286 177 14 299 200 15 311 225Which of the following statements about pollution taxes, cap and trade, or command-and-control standards is FALSE? a.) Pollution taxes strictly control the amount of pollution but leave marginal abatement costs to be determined by the market. Cap-and-trade programs strictly control marginal abatement costs but leave the actual amount of pollution to be determined by the overall level of economic activity. b.) Pollution taxes are unpopular in the U.S. because American companies tend to dislike taxes in general. However, pollution taxes offer firms some greater certainty about how large will be their marginal cost of abatement on the last unit of abatement they will need to do, if they are to minimize the costs they incur both for cleanup and for pollution taxes. c.) Both command-and-control pollution standards, and cap-and-trade programs, can effectively limit the total amount of pollution, but command and control will be least-cost only by accident. Usually,…
- Please help with the calculations & working :) In this question there is a diagram with ‘y’ being the vertical axis representing costs/damages, and ‘P’ being a horizontal axis representing pollution. Abatement is the opposite of pollution, so if pollution falls from, say, 3 to 1 abatement rises by 2. 1. Suppose the marginal damage curve to private firms is MDP: y=0 and the marginal cost of abatement is MCA: y=1-P if P<1 and y=0 otherwise, where y is the vertical axis on a cost/damage scale, and P is the amount of pollution. Plot these curves and the equilibrium amount of pollution which is privately optimal for the firm. 2. Why is the marginal cost of abatement is downward sloping (with increasing pollution measured on the bottom axis as you go right). Give an example where this is a reasonable assumption 3. Suppose the marginal damage to society is MDS: y=P. Calculate the socially optimal amount of pollution. What ethical system does the ‘optimal amount of pollution’ belong? To…5B. Two textile mills, located across a river from each other, are polluting the river. The marginal costs of pollution reduction for each firm are MCE₁ = 4E₁ + 4 MCE2 = 4/3E2 + 4/3, where E is the reduction in pollution from unregulated levels. The associated marginal social benefit is estimated to be MSB = 10-E, where E = E₁ + E₂. a. What is the socially optimal level of water-pollution reduction? c. If instead the government imposed a standard requiring each firm to equally reduce the level of pollution to achieve the socially optimal solution in part (i), what are the costs for each firm?The optimal level of pollution occurs where ... Question 1Select one: a. total benefits equal total costs. b. marginal benefits equal marginal costs. c. private costs are minimized. d. private benefits are maximized. e. average revenue equals average cost.
- Suppose the marginal cost (MC) and marginal benefit (MB) of reducing nitrogen oxide air pollution are illustrated in the figure. Suppose initially 3 million tons of nitrogen oxides are being reduced. What is the net benefit to society of increasing the elimination of nitrogen oxide air pollution to 6 million tons? The net benefit is $ million. (Enter your response rounded to one decimal place.) Cost or benefit ($ per ton) 500- 450 400- 350- 300- 250- 200- 150- 100- 50- 0- 0 1 MC 2 3 4 5 6 7 8 Reduction (millions of tons per year) MB 9 105. The marginal benefits (MB) and marginal damage costs (MD) for daily particulate air pollution in East St. Louis, Illinois are given in the following figure: $ per pound per day 2 MB MD 1 Pounds 1,000 2,000 per day a. What is the efficient level of pollution in pounds per day? Explain. b. If East St. Louis imposes an absolute ban on particulate pollution, how large would be the deadweight loss? (Be quantitative.) c. If instead of an absolute ban, the city levels a Pigouvian tax on polluters, how large should it be per pound per day to achieve efficiency? What will be the total revenues to the government? What will be the gain or loss to residents compared to the absolute ban? What will be the after tax gain or loss to polluters compared to the absolute ban? d. If instead of an absolute ban, the right to be free of pollution is given to the residents and they are allowed to bargain with the polluters, what level of pollution will Coase expect to be bargained between polluters and…If the correct amount of pollution is being produced now, which of the following is true? The average cost of pollution: a. is exactly equal to the average cost of the pollution reduction.b. can be greater than, equal to, or less than the costs of pollution reduction.c. reduction is greater than the cost of the pollution at all levels of pollution.d. reduction is less than the cost of the pollution at all levels of pollution.
- 4. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market quantity of cars is not equal to the efficient quantity. The following graph shows the private demand for cars, the private supply of cars, and the social supply of cars, which incorporates both private costs and external costs. Use the black point (plus symbol) to indicate the market quantity. Next, use the purple point (diamond symbol) to indicate the socially optimum quantity. Note: Drop lines will extend to both axes automatically. DERIVATE QUARKET O5OCIAL SSOCIAL SPRVATE QUANTITY OF CARS From society's standpoint, the market is producing cars. This is an example of of resources. PRICE OF CARS3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.An emissions standard will work best in which of the following cases? a. The marginal cost of pollution reduction curve is relatively flat. b. The marginal cost of pollution reduction curve is relatively steep. c. All firms have similar equipment and technology. d. The health effects of a pollutant are relatively unknown. e. Firms have very different equipment and technology.