Question

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?

Short answer

a). The production choices can be shown graphically as follows:

b) On the PPP curve, every point reflects production efficiency. As a result, J, L, AND N are productively efficient.

c) Allocative efficiency is a subjective concept that is influenced by personal preferences. As a result, there is no way to determine allocating efficiency in this scenario because there are no provided preferences.

d) L is preferable because it displays higher economic production and higher environmental quality.

e) N will be superior since it demonstrates more productivity efficiency (all the points on PPP curves show production efficiency).

f) In this scenario, M stands for command and control environmental policy, which means less production, whereas L stands for market-oriented environmental policy, which means more production at no additional cost to the environment.

Step-by-step solution

Given Information

Depending on the kind of environmental restrictions you adopt, the table illustrates different combinations of economic production and gunk reduction.

Content Introduction

The production possibilities curve (PPC) is a graph that shows all of the output combinations that are conceivable given current resources and technology. The production possibilities frontier (PPF), sometimes known as the PPC, displays scarcity and tradeoffs.

Explanation (part a)

The production choices can be shown graphically as follows:

Explanation (part b)

On the PPP curve, every point reflects production efficiency. As a result, J, L, AND N are productively efficient.

Explanation (part c)

Allocative efficiency is a subjective concept that is influenced by personal preferences. As a result, there is no way to determine allocating efficiency in this scenario because there are no provided preferences.

Explanation (part d)

L is the better option since it has a larger economic output and a better environmental quality.

Explanation (part e)

N will win because it has a higher productivity efficiency (all of the points on the PPP curves represent production efficiency).

Explanation (part f)

M stands for command and control environmental policy, which implies less output, whereas L stands for market-oriented environmental policy, which means more production at no additional environmental cost.