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Chapter 12: Q.16 (page 297)
What is the difference between private costs and social costs?
The main difference between private costs and social costs is that private cost is the cost incurred by an individual or a firm while social cost consists of both the private costs and any other external costs.
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Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all local people to enter the parks or to injure either the elephants or their habitat in any way. In a second approach, the government sets up the national parks and designates villages around the edges of the park as official tourist centers that become places where tourists can stay and bases for guided tours inside the national park. Consider the different incentives of local villagers - who often are very poor - in each of these plans. Which plan seems more likely to help the elephant population?
What are better-defined property rights and what incentive do they provide to account for external costs?
Consider the case of global environmental problems that spill across international borders as a prisoner鈥檚 dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of , or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of , but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of , which is divided equally between the two countries.
a. In Table , fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.
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?
Identify whether the market supply curve will shift right or left or will stay the same for the following:
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.
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