## Q061. Consider a two-person, two-commodity, pure exchange economy with:\[ U_1 = q_{11}^\alpha q_{12} \]\[ U_2 = q_{21}^\beta q_{22} \]\[ q_{11} + q_{21} = q_1^0 \]\[ q_{12} + q_{22} = q_2^0 \](iii) State Coase's theorem and evaluate the following statement in the relevance of the theorem:"It doesn't matter whether the polluter has the right to pollute or the victim has the right to be free of pollution. Either way, the outcome is efficient."---Explanation:In this problem, an economic model is given involving two individuals and two commodities in a pure exchange economy.- $ U_1 $ and $ U_2 $ represent the utility functions of the two individuals.- $ q_{11}, q_{12} $ are quantities of commodities assigned to the first individual.- $ q_{21}, q_{22} $ are quantities of commodities assigned to the second individual.- $ q_1^0 $ and $ q_2^0 $ represent the initial endowment of commodities 1 and 2, respectively.The part circled in red requires stating and evaluating Coase’s theorem in the context of a provided statement, which asserts efficiency regardless of whether property rights favor the polluter or the victim.

A negative externality occurs when an economic agent's consumption or production activities…

(iii) State coase's theorem and evaluate the following statement in the relevance of the theorem. "It doesn't matter whether the polluter has the right to pollute or the victim has the right to be free of pollution. Either way the outcome is efficient."

(iii) State coase's theorem and evaluate the following statement in the relevance of the theorem. "It doesn't matter whether the polluter has the right to pollute or the victim has the right to be free of pollution. Either way the outcome is efficient."

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

No hand written solution Afirm has an industrial plant that emits pollutants into a town’s lake. The plant’s marginal abatement function is MAC= 200 – 0.5E and damages caused by its emissions are given by MD = 2E where emissions are in kg. per day. What is the socially efficient level of emissions from this plant? Illustrate this in a graph. As an incentive to reduce emissions to the socially efficient level, government offers to pay the firm for each kg. of emissions it abates per day from this plant. What subsidy per kg. should the government offer? If the plant abates to the socially efficient level of emissions, what total subsidy payment would the firm receive? Identify the area in your graph. How much better or worse off would the firm be compared to if it did no abating? Identify the area in your graph. What would be the net benefit to society if we pay the firm to reduce the plant’s emissions to the socially efficient level? Identify this area in your graph.
Q. 4
Hi hlo Expert Hand written solution is not allowed.
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? 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…
4. Give an example of a negative externality and an example of a positive externality..?
12. Give four (4) economic activities that generate both positive and negative externalities?
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $300. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $300 per unit. 1000 900 800 700 600 500 400 300 200 PRICE (Dollars per unit of electricity) 100 ப 0 0 1 2 ° 3 0 ° 4 ° QUANTITY (Units of electricity) 5 6 Supply (Private Cost) Demand (Private Value) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government…
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
Can I get help asap please The figure below shows the market for a chemical, of which the production causes certain negative externalities in the form of pollution. Define MCP = marginal private cost, MCS = marginal social cost, D = market demand, P = price, and Q = quantity.(a) If the market is competitive, what is the equilibrium price and quantity?(b) Is this equilibrium outcome socially optimal?(c) In terms of the areas denoted by A, B, and C, what is the deadweight loss to society if the market is competitive?(d) What can the government do to achieve the socially optimal level of pollution?
4
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