hould the goal be to eliminate all pollution? How do firms deal with externalities such as pollution in economic terms? Are there economic arguments in favor of allowing a certain amount of pollution? If so, explain in detail.

hould the goal be to eliminate all pollution? How do firms deal with externalities such as pollution in economic terms? Are there economic arguments in favor of allowing a certain amount of pollution? If so, explain in detail.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Should the goal be to eliminate all pollution? How do firms deal with externalities such as pollution in economic terms? Are there economic arguments in favor of allowing a certain amount of pollution? If so, explain in detail.

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Step 1: Define Externalities

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Step 2: Should the goal is to be eliminate al the pollution

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Step 3: To address externalities like pollution, firms and governments can adopt different strategies

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Step 4: Determine the economic arguments in favor of allowing a certain amount of pollution

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Air pollution creates a negative externality—a cost suffered by a third party as a result of an economic transaction. A standard solution to a negative externality is a Pigouvian tax, a tax that raises the marginal private cost of pollution emissions to the level of the marginal social cost. The socially optimal quantity of pollution emissions is then determined by the intersection of the marginal private benefit, or demand, curve and the marginal social cost curve. The article notes that "putting a dollar value on the benefits of cleaner air has been difficult." Assuming this problem has been resolved, in the accompanying diagram, move the endpoints of line Smarginal social cost to show the marginal social cost curve. Then move the line labeled "Tax" to show the amount of the tax needed to limit emissions to the socially optimal level.
Identify the following situations as an example of a negative or a positive externality: a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. b. Your neighbor paints his house a hideous color. c. Investments in private education raise your country’s standard of living. d. Trash dumped upstream flows downstream right past your home. e. Your roommate is a smoker, but you are a nonsmoker.
What is a negative externality? What is an example of a negative externality? What is a solution for dealing with a negative externality?
What are the different types of externalities please explain with examples? What are some examples of public policies to address externalities?
Do market demand curves reflect positive externalities? Why or why not?
Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, 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.
What will a corrective tax equal to the external cost imposed on polluters result in? It will increase the level of pollution. It will force polluters to internalize the external cost resulting from their actions. It will eliminate all pollution. It will usually have NO impact whatsoever on pollution levels, but will generate tax revenue for the government.