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Chapter 12: Q.17 (page 297)
In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.
In a market without environmental regulations, the supply curve for a firm account for only the private cost.
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A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals
to clear some of Sherwood鈥檚 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?
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 |
The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table shows the total cost and total benefits (in dollars) of this policy.
Table
| Land Restored (in acres) | Total Cost | Total Benefit |
| 0 | \(0 | \)0 |
| 100 | \(20 | \)140 |
| 200 | \(80 | \)240 |
| 300 | \(160 | \)320 |
| 400 | \(280 | \)380 |
(a) Calculate the marginal cost and the marginal benefit at each quantity (acre) of land restored. See Production, Costs and Industry Structure if you need a refresher on how to calculate marginal costs and benefits.
b. If we apply marginal analysis, what is the optimal amount of land to be restored?
As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?
Recycling is a relatively inexpensive solution to
much of the environmental contamination from plastics,
glass, and other waste materials. Is it a sound policy to
make it mandatory for everybody to recycle?
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