Chapter 12: Q.7 (page 293)
An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?
Emission taxes are market-based environmental measures that allow businesses to minimize certain types of emissions.
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Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not?
What are better-defined property rights and what incentive do they provide to account for external costs?
Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the firm is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included.
As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?
Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of Table shows the total amount of garbage (in tons) that each firm currently produces. The other rows of the table show the cost of reducing garbage produced by the first five tons, the second five tons, and so on. First, calculate the cost of requiring each firm to reduce the weight of its garbage by one-fourth. Now, imagine that the government issues marketable permits for the current level of garbage, but the permits will shrink the weight of allowable garbage for each firm by one-fourth.
What will be the result of this alternative approach to reducing pollution?
| Elm | Maple | Oak | Cherry | |
| Current production of garbage (in tons) | 20 | 40 | 60 | 80 |
| Cost of reducing garbage by first five tons | \(5,500 | \)6,300 | \(7,200 | \)3,000 |
| Cost of reducing garbage by second five tons | \(6,000 | \)7,200 | \(7,500 | \)4,000 |
| Cost of reducing garbage by third five tons | \(6,500 | \)8,100 | \(7,800 | \)5,000 |
| Cost of reducing garbage by third five tons | \(7,000 | \)9,000 | \(8,100 | \)6,000 |
| Cost of reducing garbage by fifth five tons | \(0 | \)9,900 | \(8,400 | \)7,000 |
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