The depletion of the ozone layer is attributed to the emission of Chlorofluorocarbons (CFCs). Before 1990, the use of coolants in refrigerators such as Freon released a significant amount of CFCs. Given the above scenario, is the equilibrium level of refrigerators produced prior to 1990 in the market “too much” or “too little” compared to the social optimum? Explain why this occurs. Support your answer by drawing the private and social, marginal cost and marginal benefit curves for refrigerators. Identify the deadweight loss if any exists. Identify a regulation that the government can use to achieve the socially optimal level of refrigerators. Explain how this regulation works. Explain how the Coase theorem could hypothetically work to achieve the optimal level of CFCs emissions in this context. Enumerate at least one major drawback that hinders the creation of a market for CFCs without any third party regulators in the real world.
The depletion of the ozone layer is attributed to the emission of Chlorofluorocarbons (CFCs). Before 1990, the use of coolants in refrigerators such as Freon released a significant amount of CFCs.
Given the above scenario, is the equilibrium level of refrigerators produced prior to 1990 in the market “too much” or “too little” compared to the social optimum? Explain why this occurs. Support your answer by drawing the private and
Identify a regulation that the government can use to achieve the socially optimal level of refrigerators. Explain how this regulation works.
Explain how the Coase theorem could hypothetically work to achieve the optimal level of CFCs emissions in this context. Enumerate at least one major drawback that hinders the creation of a market for CFCs without any third party regulators in the real world.
Assume that the marginal savings for refrigerator producers is unknown. If the marginal damages from CFCs rises very rapidly, would an environmental standard (quota) or a tax be a better option? Explain and prove your answer with a graph.
Step by step
Solved in 5 steps with 1 images
