TrueFalseAnswer BankThe term "cap and trade" describes regulation by marketable permitsCompared with no regulation, regulation with marketable permits decreases firms' costsPollution taxes are more effective at reducing pollution than marketable permitsMarketable permits provide their owners with the right to pollute a specified amount.Marketable permits typically achieve pollution reduction at a lower cost than command-and-control regulation

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Answered: True False Answer Bank The term "cap…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Public goods are BEST defined as those which possessed the characteristics of: irresistibility, indivisibility, and non-excludability non-rivalry, excludability and having no opportunity costs irresistibility, divisibility, and possessing positive externalities indivisibility, non-excludability, and non-rivalry
Given the following information: Initially, a perfectly competitive market for a product is in equilibrium, with an upward-sloping straight-line market supply curve, a downward-sloping straight-line market demand curve, and a market price of $30 per unit. Consumption of this product causes pollution. Initially, the marginal external cost of the pollution caused by consuming the product is $9 per unit. There is no government policy toward the externality. The government then mandates a shift to a new product version, and all firms adopt and produce the latest version. Consumers view the new product version as equally as good as the initial product version. Consumption of the new version of the product causes less pollution, and the marginal external cost decreases by $3 per unit. For each firm, production of the new product version does not change fixed cost, but it does increase average variable cost by $3 per unit. If necessary, the market adjusts to a new equilibrium. There is…
Given 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).
Externalities can not be positive. That is, there can be a third party cost associated with the production or consumption of a good or service, but there cannot be a benefit. A) True B) False
Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. To design an efficient emissions standard, the government needs to determine which is the efficient abatement allocation (aL, aH). In order to do this, obtain a cost effective abatement allocation (aL, aH)that provides an aggregate abatement level A = aL + aH, and then proceed to determine the efficient level A (Hint: You should obtain that MCA = A=3)
Why does government intervention become necessary in the situation of market failure?
Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms' costs, the government just implements a uniform standard aui = A* / 2. Is this allocation efficient? If not, what is the deadweight loss?
Assume that radio broadcasts are nonrival and nonexcludable. Two people, Artie and Bill, listen to the same radio station during their commute. Each person values the radio station at $3$3 per day. Both Artie and Bill loathe listening to advertisements. Listening to advertisements makes Artie and Bill each worse off by $1.50$1.50 per day. The radio station needs $2$2 per day to continue operating, which it currently earns from advertisers ($2$2 per day is exactly what the airtime is worth to the advertisers). The radio station is considering asking for donations from Artie and Bill and getting rid of the advertising. Artie and Bill can choose to donate to prevent advertisements or not. If only one chooses to donate, he must donate the whole $2$2 to get rid of the ads. If both choose to donate, each pays $1.$1. Assume that both Artie and Bill are each trying to gain the most net benefit possible, and that they do not cooperate with each other. What is the socially efficient way to…
Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
Compared with a standard, both tradable discharge permits and emission taxes tend to be preferred by firms impose larger payment burdens on cach and every polluter have been more commonly used in practice to address actual pollution problems provide greater incentives for firms to search for innovative ways to abate pollution
Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. What Pigouvian tax t will implement the efficient allocation (aL, aH)? Is the resulting allocation an efficient allocation? What is the government's tax revenue?

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