M is a flow uniformly-mixing pollutant. Its release allows to generate marginal benefits B'(M) Actual to polluters and consumers in the form of consumers and producers surplus and generates marginal damages D'(M). The true marginal benefits are not known to the decision maker, who believes that the marginal benefit curve is B'(M) GOV. 1. Identify the socially optimal level of pollution M* and briefly discuss the result. 2. Evaluate (graphically) the deadweight loss if the government sets a standard (command-and-control) given the information at its disposal. 3. Evaluate (graphically) the deadweight loss if the government sets a pigouvian tax given the information at its disposal. Briefly discuss the results. B'(M)Actual B'(M) GOV D'(M) M

M is a flow uniformly-mixing pollutant. Its release allows to generate marginal benefits B'(M) Actual to polluters and consumers in the form of consumers and producers surplus and generates marginal damages D'(M). The true marginal benefits are not known to the decision maker, who believes that the marginal benefit curve is B'(M) GOV. 1. Identify the socially optimal level of pollution M* and briefly discuss the result. 2. Evaluate (graphically) the deadweight loss if the government sets a standard (command-and-control) given the information at its disposal. 3. Evaluate (graphically) the deadweight loss if the government sets a pigouvian tax given the information at its disposal. Briefly discuss the results. B'(M)Actual B'(M) GOV D'(M) M

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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