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Chapter 12: Q.29 (page 297)
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?
Price and quantity with and without external cost should be known before determining external cost.
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What is a marketable permit and what incentive does it provide for a firm to account for external costs?
Suppose a city releases million gallons of raw sewage into a nearby lake. Table shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)
Total Cost (in thousands of dollars) | Total Benefits (in thousands of dollars) | |
16 million gallons | Current situation | Current situation |
12 million gallons | 50 | 800 |
| 8 million gallons | 150 | 1300 |
| 4 million gallons | 500 | 1650 |
| 0 gallons | 1200 | 1900 |
a. Using the information in Table , calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Production, Costs, and Industry Structure if you need a refresher on how to calculate marginal costs.
b. What is the optimal level of sewage for this city?
c. Why not just pass a law that firms can emit zero sewage? After all, the total benefits of zero-emissions exceed the total costs.
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?
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?
Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the firm is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included.
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