Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 16, Problem 1.10P
To determine
What will the firms do when they have to cut their pollution emission.
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Two firms - A & B - -- are ordered by the federal government to reduce their pollution
levels. Firm A's marginal cost of pollution reduction is MCA = 150 + 3QA and Firm B's
marginal cost of pollution reduction is MCB = 9QB. The marginal benefit of pollution
reduction is MB = 250 4QT, where QT is the total amount of reduction. If the
government required Firm A and Firm B to reduce pollution by the same amount, what is
―
Firm A's MC of this policy?
Two firms - - A & B - are ordered by the federal government to reduce their pollution
levels. Firm A's marginal cost of pollution reduction is MCA = 150 + 3QA and Firm B's
marginal cost of pollution reduction is MCB = 9QB. The marginal benefit of pollution
reduction is MB = 250 - 4QT, where QT is the total amount of reduction. If the
government required Firm A and Firm B to reduce pollution by the same amount, what is
Firm B's MC of this policy?
Suppose the United States has two utilities, Commonweath Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year. However, the marginal cost of
reducing a ton of pollution for Commonwealth Utilities is $200 per ton and the marginal cost of reducing a ton of pollution for Consolidated Electric is $225 per ton. The government's goal is to cut
sulfur dioxide pollution in half (by 20 million tons per year).
If the government issues 10 million tradable pollution permits to each utility, what will be the cost of eliminating half of the pollution to society?
million per year.
Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $
What is an externality in economics? Explain how a neighbor’s barking dog could be both a positive and a negative externality.
Can pollution ever make us better off? How do we know? Should we aim to eliminate all pollution? If not, what should our goal be? Defend your answer.
When thinking about types of goods, what does rivalry mean? What does excludability mean? What are the four categories of goods we can identify using those attributes, and what is an example of a good in each category?
Chapter 16 Solutions
Principles of Economics (12th Edition)
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- The following table shows the current level of toxic waste dumped by two firms and the marginal cost of cleaning up additional 10 lbs increments of waste. Suppose the government has imposed a pollution tax of $7 per 10 lbs of waste. Calculate the reduction in total pollution and the total cost to the firms of doing so? Current waste (lbs) Cost of reducing by 1st 10 lbs Cost of reducing by 2nd 10 lbs Cost of reducing by 3rd 10 lbs Cost of reducing by 4th 10 lbs Cost of reducing by 5th 10 lbs Firm A 60 $5 $10 $15 $20 $25 Firm B Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. 80 $2 $4 $6 $8 $10arrow_forwardTwo identical firms save money from polluting. A firm’s marginal savings from emitting an amount e are given by 10 − 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution, while one unit of emissions from firm 2 results in one unit of ambient pollution. a) Initially the policy-maker decides to institute a standard cap and trade program instead of regulating ambient pollution. If each firm is initially given three emission permits, how many permits will each firm end up with and what will be the price? b) The policy-maker realizes the differences between the firms and de- cides to institute ambient pollution permit trading. What are the transfer coefficients for each of the firms? If instead each firm is given two ambient pollution permits and trading takes place, how much will each firm end up emitting, and what will be the price?arrow_forwardPaper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool 80 Daily Demand for Pollution Rights 72 I Price (Dollars per ton) 8 64 Quantity Demanded 360 56 (Millions of tons) 48 40 32 24 Demand 16 8 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Suppose the government has…arrow_forward
- Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm cre the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms. Firm Firm A Firm B Firm C First Unit of Pollution (Dollars) 55 650 90 Method 1: Regulation Cost of Eliminating the... Second Unit of Pollution (Dollars) 70 800 125 Third Unit of Pollution (Dollars) 110 1,500 180 Next,…arrow_forwardThere are 2 firms: Firm X and Firm Y. Firm X has the following cost to pollution reduction: MCx = 10 + 2Qx Firm Y has the following cost to pollution reduction: MCy = 4 + 4Qy Both firms currently produce 100 units of pollution, for a combined production of 200 units. The government has decided to reduce total pollution to 56 units. To do this, the government introduces 56 tradable permits, giving 28 to each firm. What is the equilibrium price of each permit?arrow_forwardScenario 2. Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. Refer to Scenario 2. What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? if firms are not allowed to buy and sell pollution permits from each other?arrow_forward
- Firm A currently dumps 223 tons of chemicals into the local river. Firm B currently dumps 192 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits. The abatement costs of one ton of pollution is $173 for Firm A and $76 for Firm B. What would be the total cost of reducing pollution, if the firms are allowed to trade permits between each other?arrow_forwardThere are three identical firms in Happy Valley. Firms Initial Pollution Level Cost of Reducing Pollution by 1 unit A 30 units $20 B 40 units $30 C 20 units $10 The government wants to reduce total pollution to 60 units, so it gives each firm 20 tradable permits. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so? What is the total cost of pollution reduction in this situation? How much larger would the cost of pollution reduction be if the permits could not be traded?arrow_forwardThe following table shows the marginal costs for each of the four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $ 54, and for Firm A to eliminate a second unit of pollution it would cost an additional$67. Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price for the permits? a.$69b.$97c.$81d. 583arrow_forward
- The following table shows the total costs for each of four firms (A,B,C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $40, and for Firm A to eliminate two units it would cost a total of $105. If the government charged a tax of $74 per unit of pollution, how many units of pollution would the firms eliminate altogether? Number of units Firm A Firm B Firm C Firm D eliminated One unit 40 45 50 48 Two units 105 100 80 108 Three units 180 172 165 178 Four units 285 244 250 285 O 16 O 11 O 14 0 9 O 5arrow_forwardSuppose there are two firms producing 6 units of pollution each. The government decides that they want to reduce the total pollution to 6 units, so they issue 3 pollution permits to each firm. The cost of abating the pollution for each firm are given in the following table: FIRM A Unit of pollution FIRM B Unit of pollution Marginal Cost of cleaning up this unit of pollution $6 $14 $25 S40 $60 $90 Marginal Cost of cleaning up this unit of pollution 535 $70 $120 $180 $280 $390 If the two firms work together to reduce the total cost of cleaning up the pollution, how many permits will be traded and which firm will sell the permits and which firm will buy the permits?arrow_forwardFirms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society’s marginal benefit from pollution reduction is given by MB = 590 – 3Qtot, where Qtot is the total reduction in pollution. What is the socially optimal level of each firm’s pollution reduction?arrow_forward
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