Chapter 12: Problem 17
In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.
/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none}
Learning Materials
Features
Discover
Chapter 12: Problem 17
In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.
All the tools & learning materials you need for study success - in one app.
Get started for free
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 12.6 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?
Would environmentalists favor command-andcontrol policies as a way to reduce pollution? Why or why not?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and- control regulation. Fill in the table by stating briefly how each market- oriented tool addresses each of the three concerns. $$\begin{array}{l|lcc}\hline & \begin{array}{l}\text { Incentives to } \\\\\text { Go Beyond }\end{array} & \begin{array}{c} \text { Flexibility about Where and How } \\\\\text { Pollution Will Be Reduced }\end{array} & \begin{array}{c}\text {Political Process Creates } \\\\\text { Loopholes and Exceptions }\end{array} \\\\\hline \begin{array}{l}\text { Pollution } \\\\\text { Charges }\end{array} & & \\\\\hline \begin{array}{l}\text { Marketable } \\\\\text { Permits }\end{array} & & \\\\\hline\begin{array}{l}\text { Property } \\\\\text { Rights }\end{array} & & \\\\\hline\end{array}$$
What is the difference between private costs and social costs?
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as \(\mathrm{Pm}\) and \(\mathrm{Qm}\). Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.
What do you think about this solution?
We value your feedback to improve our textbook solutions.