Chapter 12: Q.20 (page 297)
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
A pollution charge stimulates a profit-maximizing firm to find out how to minimize its emissions as long as the marginal cost of decreasing emissions is less than the tax.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
What is the difference between private costs and social costs?
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?
An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?
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?
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?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
