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- BN12.2 (a) Case: The market for dry cleaning is reflected by the demand and supply curves (Q is in thousands): Pa = 5-Q Ps= 2+2Q Producing dry cleaning creates ground water pollution with a constant marginal external cost of 1.2. Question: (a) Sketch a graph that shows the Dsoc, Spriv, Ssoc, Qopt (societal perspective) and DWL in an unregulated market (No need to label the values in the graph)?Setup Suppse that the Demand and Supply for Electricity is given below. The production of electricity has a negative externality. Demand: QD= 9.875 -0.125P Supply: QS= 4P -19 Inverse Demand: P=79-8QD Inverse Supply: P=4.75+0.25QS Marginal Spillover Cost: MSPC= 9.5 +Q 1) Determine the Efficient Quantity. 2) Calculate the Deadweight Loss from Externality. 3) Calculate Optimal Pigovian Per Unit Tax 4) Calculate Tax Revenues Market Price: $7.00 Market Quantity: 9Given the same marginal damage and same marginal abatement cost curve, the socially efficient emission subsidy is the same magnitude (dollars per ton) as the socially efficient emission tax (dollars per ton). True False Next
- Marginal Damages of Pollution: MD = 40 Marginal Abatement Cost: MAC = 100 -2Q e. Calculate and compare the change in welfare for Mr. Peabody's coal plant under the efficient tax and efficient subsidy (i.e. the difference in the plant's welfare under a tax (subsidy) compared to no policy at all).Consider a market where the demand curve is given by P = 190 – 0.2Q and the supply curve is given by P = 41 + 0.1Q. Production of this good generates an external cost as measured by the marginal external cost function MEC = 0.1Q. If the government wants to encourage firms to produce at the socially efficient level of output then how large should the per unit tax be? Enter a number rounded to two decimal places as necessaryConsider a competitive industry with production valued according to a MB = 200 - Q and production entails a private marginal cost MC = 50 + 2Q but also an external cost MCE = 30 + 2Q associated to air pollution resulting from the production process. Find the socially efficient quantity of output Q. What quantity Q0 will be produced by the market? Is this quantity efficient? If not, obtain the deadweight loss.
- Large taxes on energy companies whose production activities cause environmental damage. How does this negative externality affect the allocation of resources? List three things. Include pigovian taxes and marginal costs.Q42A profit-maximizing firm operating two factories currently emits 10 tons of pollution. Marginal private benefit of each ton emitted at each factory is listed in the table below. If it must reduce pollution by 6 tons, how many tons would it continue to emit from Factory B? Marginal Private Benefit Factory B $14 $12 $9 Factory A $20 Ton $18 $15 $11 $7 3 4 $6 $3
- Distinguish between private and public goods externalities. Discuss the likelihood of bargaining leading to an efficient allocation of resources in each case.In a market for chemicals, the demand function is P = 200 – Q. The private marginal cost for the chemicals produ cers is MCP = 50 + Q. Pollution generated during the production process causes external marginal cost for the society equal to MCE = 3Q. 4. (a) What specific tax would resultin a competitive market producing the socially optimal quantity of chemicals? Instead of taxation, whatelse can the government do to make sure that the market will work itself out to achieve the socially optimal output? (b)Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: MACA=160 2- e and MACB=100-es, where e represents firm A's emissions in tons and ea represents firm B's emissions in tons. Suppose the government wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1 ton, and that the market for permits is perfectly competitive. a. Suppose the government initially distributes the total number of TEPs it issues equally between the two firms. The permits are distributed free of charge. Once trade in permits takes place, what will be the equilibrium in the market for TEPS (i.e. which firm will buy how many TEPs from the other, and at what price)? b. Briefly describe three problems of setting up a TEP market.