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Chapter 12: Q.20 (page 297)
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
A pollution charge stimulates a profit-maximizing firm to find out how to minimize its emissions as long as the marginal cost of decreasing emissions is less than the tax.
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In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent?
In the Land of Purity, there is only one form of pollution, called 鈥済unk.鈥� Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose.
a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output 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 K and L, can you say which one is better and why?
e. In the choice between K and N, 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 L or M? Why?
Can extreme levels of pollution hurt the economic
development of a high-income country? Why or why
not?
Classify the following pollution-control policies as command-and-control or market incentive-based.
a. A state emissions tax on the quantity of carbon emitted by each firm.
b. The federal government requires domestic auto companies to improve car emissions by 2020.
c. The EPA sets national standards for water quality.
d. A city sells permits to firms that allow them to emit a specified quantity of pollution.
e. The federal government pays fishermen to preserve salmon.
Technological innovations shift the production
possibility curve. Look at graph you sketched for
Exercise 12.13 Which types of technologies should
a country promote? Should 鈥渃lean鈥� technologies be
promoted over other technologies? Why or why not?
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