5. 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?

5. 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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Which of the following best describes the issuance of permits to pollute as a way of influencing the amount of pollution? Permits to pollute: a. encourage business to pollute.b. should be purchased by those whose pollution is the least expensive to eliminate.c. should be purchased by those whose pollution is the most expensive to eliminate.d. are preferable over taxes because they can be limited to exactly the efficient amount of pollution.
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
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $140 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $140 per ton. Sac Cont O Say Cet Demand P v QUANTITY (araf ste The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is_ tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a ▼ of5 per ton of steel. d al anid
6. Correcting for negative externalities - Taxes versus tradable permits Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per ton) 50 45 40 35 30 25 20 15 10 5 0 0 Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Millions of tons) Graph Input Tool Daily Demand for Pollution…
3. An externality is a consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative. Evaluate the positive externalities and the negative externalities through examples from the real life
2. Efficiency in the presence of externalities Trucks impose many external costs on society: heavy air and noise pollution, traffic safety issues and road congestion, and so on. Therefore, the market equilibrium quantity of diesel trucks does not equal the socially optimal quantity. The following graph plots the demand for diesel trucks (their private value), the supply of diesel trucks (the private cost of producing them), and the social cost of diesel trucks, including both the private cost and external costs. 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. PRICE OF DIESEL TRUCKS Social Cost Supply (Private Cost) Demand (Private Value) QUANTITY OF DIESEL TRUCKS + Market Equilibrium ■ Socially Optimal Level ?