Chapter 12: Q.17 (page 297)
In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.
In a market without environmental regulations, the supply curve for a firm account for only the private cost.
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Will a system of marketable permits work with thousands of firms? Why or why not?
In the Land of Purity, there is only one form of pollution, called “gunk.” Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose.
a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output 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 K and L, can you say which one is better and why?
e. In the choice between K and N, 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 L or M? Why?
The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table shows the total cost and total benefits (in dollars) of this policy.
Table
| Land Restored (in acres) | Total Cost | Total Benefit |
| 0 | \(0 | \)0 |
| 100 | \(20 | \)140 |
| 200 | \(80 | \)240 |
| 300 | \(160 | \)320 |
| 400 | \(280 | \)380 |
(a) Calculate the marginal cost and the marginal benefit at each quantity (acre) of land restored. See Production, Costs and Industry Structure if you need a refresher on how to calculate marginal costs and benefits.
b. If we apply marginal analysis, what is the optimal amount of land to be restored?
Can extreme levels of pollution hurt the economic
development of a high-income country? Why or why
not?
For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?
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