8.1 Suppose we have an agricultural valley 100 km by 50 km, with a polluting electricitypower plant. The power plant causes pollution problems in a narrow strip of land downwindof the plant, and within this valley. 10 km in length and 500 m in width, but no problemsoutside of that area. The total effect of the pollution is to make crop land less productive. Ifwe were to clean up the pollution, would we expect land prices to increase? Where? Wouldwe expect wages to decline? Would the changes in land prices and/or wages fully reflect thebenefits of cleaning up the pollution? Why or why not?

Answered: Image /qna-images/answer/a5fdc681-ccb8-40ec-9462-4396bd0ad391.jpg

Answered: 8.1 Suppose we have an agricultural…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 10PA

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How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
In the Land of Purity, there is only one form of pollution, called gunk. Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between K and L, can you say which one is better and why? In the choice between K. and N, can you say which one is better, and why? If you had to guess, which choice would you think is move likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not?
9. There are three industrial firms in Happy Valley. Initial Pollution Cost of Reducing Firm Level Pollution by 1 Unit A 30 units $20 B 40 units $30 C 20 units $10 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation b. How much higher would the costs of pollution reduction be if the permits could not be traded? nswers
9. There are three industrial firms in Happy Valley. Initial Pollution Cost of Reducing Firm Level Pollution by 1 Unit A 30 units $20 40 units $30 C 20 units $10 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? b. How much higher would the costs of pollution reduction be if the permits ould not be traded? Answers
V1
How do taxes, pollution charges, and cap-and-trade work to reduce emissions? When a cap-and-trade is implemented _______.
According to economists what is the optimal amount of pollution? O a. The optimal amount of pollution is where private costs equal social costs O b. Pollution should be reduced to a level as determined by government regulation O c. None, the goal is to completely eliminate pollution d. The point where the marginal benefit from further pollution reduction equals the marginal cost of further reduction

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