Why the imposition of pollution tax of more than the actual value of the damage is unfair.

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Answer 1

Question

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

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Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve. (Hint: Show that learning by doing lowers its cost in the second period.) Part 2 Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash equilibrium?

Answer

M” method Given the following model, solve by the method of “M”. (see image)

Answer 2

Question

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

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Answer 3

Question

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

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Answer 4

Question

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

Answer 6

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

Answer 7

Chapter 16, Problem 1.1P

To determine

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

Answer 8

Expert Solution & Answer

Explanation of Solution

When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution taxation is the tax rate which has a penalty equal to the marginal damage cost by the firm. The following diagram shows the optimal pollution taxation:

EP PRIN.OF MICROECONOMICS-MYLAB ACCESS , Chapter 16, Problem 1.1P

When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal social cost of the pollution. Excess tax of the marginal social cost would cause the price to increase beyond the marginal social cost, which is an inefficient result.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.

Answer 12

Ch. 16 - Prob. 1.1P Ch. 16 - Prob. 1.2P Ch. 16 - Prob. 1.3P Ch. 16 - Prob. 1.4P Ch. 16 - Prob. 1.6P Ch. 16 - Prob. 1.7P Ch. 16 - Prob. 1.8P Ch. 16 - Prob. 1.9P Ch. 16 - Prob. 1.10P Ch. 16 - Prob. 1.11P

Why the imposition of pollution tax of more than the actual value of the damage is unfair.

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Why the imposition of pollution tax of more than the actual value of the damage is unfair.

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