Question

For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?

Short answer

(a) The equilibrium price will rise if firm pays fine.

(b) The equilibrium price will rise if firm is sued for polluting water.

(c) The equilibrium price remains same if power plants are not required to address impact of air quality emission.

(d) The equilibrium price remains same if companies use fracking.

Step-by-step solution

Equilibrium price :

The equilibrium price is the price where the quantity of supply of goods meets the quantity of demand for commodities.

(a) Explanation : 

If businesses are obliged to pay a higher penalty for generating carbon dioxide, prices will rise, causing supply to go out of balance, resulting in a decrease in demand.

If a producer is penalized, the increased cost will be passed on to the customer, who will then expect less. This would result in a very high equilibrium price.

(b) Explanation : 

If firms are fined an additional amount for polluting the river, the equilibrium price will rise because the producer would offer each product with a rider fine charge, resulting in decreasing customer demand.

(c) Explanation : 

If a power plant in a certain city is not obligated to monitor or handle air quality emissions, the producer's market supply will remain unchanged, and the consumer's demand would remain unchanged.

It will have no effect if the producer is not fined or addressed as a result of their air quality emissions. Hence, the equilibrium price remains unchanged.

(d) Explanation :

There would be no change in demand and supply if companies used fracking to extract oil and gas from the rock and were required to clean up the mess. There would be no price change as a result of this.

If the price is low and the producer has absorbed it rather than passing it on to the customer, the supply and demand for the product will remain unchanged, resulting in no change in the equilibrium price. However, if the corporation passes on the additional cost to the customers, the equilibrium price will alter.