Chapter 12: Q 28. (page 297)
What does a point inside the production possibility frontier represent?
A point inside the production possibility frontier represents a production inefficiency.
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For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?
a. Firms in an industry are required to pay a fine for their carbon dioxide emissions.
b. Companies are sued for polluting the water in a river.
c. Power plants in a specific city are not required to address the impact of their air quality emissions.
d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage.
Identify the following situations as an example of a negative or a positive externality:
a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.
b. Your neighbor paints his house a hideous color.
c. Investments in private education raise your country’s standard of living.
d. Trash dumped upstream flows downstream right past your home.
e. Your roommate is a smoker, but you are a nonsmoker.
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?
What arguments do low-income countries make in international discussions of global environmental clean-up?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
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