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 36, Problem 2.5P
To determine
The role of energy use tax on power consumption.
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Portland is trying to reduce annual NOx emissions by 200 units. Its environmental
planners are now deciding how to allocate the abatement mandate between cars and
power plants. The marginal costs of abatement from cars (Qc) and abatement from
plants (Qp) are MACC = 3Qc and MACP = Qp. Each source is currently emitting 200
units (so total emission from both sources are 400). (Note: Q is the quantity of
abatement and the goal is to abate a total of 200 units).
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(a) On your work sheet Graph the two marginal cost lines (on two separate graphs).
(b) The traditional approach has been to assign all 200 units of abatement to the
power plants, i.e. Qc = 0 and Qp = 200. What is the total cost of abatement under
this system?
Show your calculations on your work sheet and enter the total cost in the blank
below.
(c) The planners have hired you to tell them what the cheapest way is for the city to
divide the 200 units of abatement between the two sources. What do you tell them?
(ie. what are Qc"…
A river is being used by both a chemical factory for waste disposal and a salmon fishery for fish
reproduction. Waste emissions from the factory detrimentally affect fish reproduction at the
downstream salmon fishery. The chemical factory's emission levels are currently unregulated.
The marginal damage caused to the salmon fishery is given by MD=4e, where e is the level of
emissions discharged into the river per month by the chemical factory. To reduce its emissions,
the chemical factory would face marginal abatement costs of MAC=800-16e.
Suppose that instead of a constant tax of $T per unit of emissions, the government enacts a two-
rate tax system, where the higher rate (call it TH) is designed to achieve the efficient level of
emissions, and the lower rate (call it T1) is designed to collect just enough tax revenues to cover
the damages from remaining emissions.
23. At what amount per unit should the government set for the higher rate? $
24. At what amount per unit should the…
Chapter 36 Solutions
Principles of Economics (12th Edition)
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