Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 11, Problem 10PA
To determine
Cost benefit analysis.
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To evaluate potential policy options that address emissions and climate change, economists often recommend a thorough cost-benefit analysis, in which the avoided environmental and human health damages are weighed against the["marginal abatement costs", "marginal abatement benefits"] .
Most estimates by environmental economists suggest that the benefits of emission reduction are somewhere between 5-20% of world GDP, while the costs are between 1-4%. Using a cost-benefit analysis, this would imply that these policies ["should", "should not"] be implemented.
The resulting policies can take the form of ["preventive", "adaptive"] strategies, those that reduce damages resulting from climate change, or ["preventive", "adaptive"] strategies that reduce emissions.
a) If the total benefits to society of achieving some specific level of pollution control aresignificantly greater than the total costs to society of doing so, will it necessarily beeconomically efficient (socially optimal) to do so? Explain your answer with words and agraph.b) In March 2011, the US EPA issued a report that looked at the results of the Clean Air Actfrom 1990 to 2020 (see: http://www.epa.gov/air/sect812/prospective2.html). This reviewfound that in the central estimate of the CAA’s impact, benefits exceeded costs by a ratio of30 to 1. This leads some environmental policy commentators to conclude that the EPA hadnot gone far enough in reducing air pollution. Under what conditions would a benefit costratio of 30:1 imply that it would be economically efficient to further reduce air pollutionunder the CAA? Assuming the EPA’s benefit-cost estimate is correct, is it possible that itcould actually be economically efficient to loosen, rather than strengthen, air…
Questions 1-4
The Alpha, Beta, and Gamma residents of a village are
install street lights along the main street of the village
The marginal benefit (Am) of the streetlights is:
- Alpha: Am = 10.000-80x.
- Beta: Am = 8.000-90x.
- Gamma: Am = 14.000-70x
1. If a streetlight costs $8,000, what is the optimal
collective number of streetlights?
а. 25. b. 65. с. 100 d. 110
2. What is the marginal benefit of Alpha at the
optimal number of street lights?
а. О. b. 2,000 с. 3,500. d. 4,500.
3. What is the marginal benefit of Gamma at the
optimal number of street lights?
а. О. b. 6,000. с. 7,000 d. 9,000
4. How will Citizen Beta react to the proposal to
levy a flat tax of $5,000 per citizen per streetlight
to fund the development of streetlights? He
a. Will be willing to pay the tax.
b. will refuse to pay the tax.
c. is unable to conclude whether Beta will be
willing to pay the tax or not. d. will be indifferent to
the "neither for nor against" street lights.
Chapter 11 Solutions
Principles of Microeconomics
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