is initially abating Q units of pollution. Suppose that asystem of tradeable pollution permits is introduced intothis market and the equilibrium permit price is P*Firm B will sell permits to Firm A becauseOA. Firm A has lower costs of pollution abatementthan Firm B.OB. Firm B's total cost of abating morepollution (area 1) is less than the revenue itearns from selling the permits (areas 5+3).OC. Firm B's total cost of abating morepollution (areas 3+1) is less than therevenue it earns from selling thepermits (areas 5+3+1).OD. Firm B can buy the permits at a lower pricethan Firm AOE. the revenue Firm B earns from sellingpermits (areas 3+1) is greater than the cost itincurs from abating more pollution (area 1).Dollars per unitQ₁QoQ2Pollution AbatementилNext-6°C Mostly clearMCAMCB

ExplanationThe system of tradeable pollution permits allows firms to buy and sell pollution…

Answered: is initially abating Q units of…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 12SCQ: Consider the case of global environmental problems that spill across international borders as a...

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Similar questions

Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
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?
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?
Do market demand curves reflect positive externalities? Why or why not?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwoods forest and grow com, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, 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 T and R, decide which one is better. Why? In the choice between T and S, can you say which one is better, and why? If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
Give an example of a positive externality and an example of a negative externality.
Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.
The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment: a. The cost of producing Zlurp is 150, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) How many bottles will each Whovillian consume? What is each persons consumer surplus? b. Producing Zlurp creates pollution. Each bottle has an external cost of 1. Taking this additional cost into account, what is total surplus per person in the allocation you described in part (a)? c. Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by one bottle. What happens to Cindys welfare (her consumer surplus minus the cost of pollution she experiences)? How does Cindys decision affect total surplus in Whoville? d. MayorCrinch imposes a 1 tax on Zlurp. What is consumption per person now? Calculate consumer surplus, the external cost, government revenue, and total surplus per person. e. Based on your calculations, would you support the mayors policy? Why or why not?

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