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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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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.
Incentives to Go Beyond | Flexibility about Where and How Pollution Will Be Reduced | Political Process Creates Loopholes and Exceptions | |
Pollution Charges | |||
Marketable Permits | |||
Property Rights |
Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermined technologies. In the second approach, the U.S. government determines which technologies are cleaner and subsidizes their use. Of the two approaches, which is the command-and-control policy?
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 Pm and 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.
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鈥檚 standard of living.
d. Trash dumped upstream flows downstream right past your home.
e. Your roommate is a smoker, but you are a nonsmoker.
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
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