Chapter 12: Q.14 (page 296)
What is an externality?
Externality is a cost or benefit to a third party who does not participate in the consumption or production of a good or service.
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What is the difference between private costs and social costs?
Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all local people to enter the parks or to injure either the elephants or their habitat in any way. In a second approach, the government sets up the national parks and designates villages around the edges of the park as official tourist centers that become places where tourists can stay and bases for guided tours inside the national park. Consider the different incentives of local villagers - who often are very poor - in each of these plans. Which plan seems more likely to help the elephant population?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals
to clear some of Sherwood’s forest and grow corn, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection.
a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, on the vertical axis.
b. Which choices display productive efficiency? How can you tell?
c. Which choices show allocative efficiency? How can you tell?
d. In the choice between T and R, decide which one is better. Why?
e. In the choice between T and S, can you say which one is better, and why?
f. If you had to guess, which choice would you think is more likely to represent a command-and-control
environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?
Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermined technologies. In the second approach, the U.S. government determines which technologies are cleaner and subsidizes their use. Of the two approaches, which is the command-and-control policy?
Recycling is a relatively inexpensive solution to
much of the environmental contamination from plastics,
glass, and other waste materials. Is it a sound policy to
make it mandatory for everybody to recycle?
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