The problems with e.g."Acid rain" created by emissions of sulfur dioxide has been onemajor problem in Sweden, not least because emissions have occurred in other countries (eg England and Denmark) andthen transported here. Now assume that if one tonne of sulfur is emitted in England, it results in one (1) gram of sulfur deposition in Sweden. The corresponding deposit of one tonne of sulfur emissions in Denmark is assumed to be 3 grams. Suppose further that The socio-economic damage of one gram of sulfur deposit can be estimated at SEK 0.10.The marginal cost of reduce sulfur emissions in England is estimated at Z SEK per tonne, and in Denmark the equivalent is estimatedcost to 2Z SEK per tonne. Z indicates here the emission reduction in tonnes (eg in Denmark it would cost SEK 4 toreduce emissions by two tonnes). In other words, Z = 0 corresponds to the emission level where there is no reductionemissions occur. a) Suppose now that the European Union decides that Denmark and England together must reduce their emissions by 12 tonnes (regardless of the damage caused to Sweden). How much reduction will take place in each country if the total reduction takes place in a cost-effective way? b) Assume now instead that the two countries must take into account the damage that the emissions cause in Sweden. Consider the distribution of the reduction commitment that you calculated in a), is this still cost-effective? If the answer is yes, justify your answer carefully. If the answer is no, calculate the new cost-effective distribution and explain why the results differ.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The problems with e.g."Acid rain" created by emissions of sulfur dioxide has been onemajor problem in Sweden, not least because emissions have occurred in other countries (eg England and Denmark) andthen transported here.

Now assume that if one tonne of sulfur is emitted in England, it results in one (1) gram of sulfur deposition in Sweden. The corresponding deposit of one tonne of sulfur emissions in Denmark is assumed to be 3 grams. Suppose further that The socio-economic damage of one gram of sulfur deposit can be estimated at SEK 0.10.The marginal cost of reduce sulfur emissions in England is estimated at Z SEK per tonne, and in Denmark the equivalent is estimatedcost to 2Z SEK per tonne. Z indicates here the emission reduction in tonnes (eg in Denmark it would cost SEK 4 toreduce emissions by two tonnes). In other words, Z = 0 corresponds to the emission level where there is no reductionemissions occur.

a) Suppose now that the European Union decides that Denmark and England together must reduce their emissions by 12 tonnes (regardless of the damage caused to Sweden). How much reduction will take place in each country if the total reduction takes place in a cost-effective way?

b) Assume now instead that the two countries must take into account the damage that the emissions cause in Sweden. Consider the distribution of the reduction commitment that you calculated in a), is this still cost-effective? If the answer is yes, justify your answer carefully. If the answer is no, calculate the new cost-effective distribution and explain why the results differ.

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