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Chapter 12: Q.33 (page 297)
Is zero pollution possible under a marketable permits system? Why or why not?
Yes, it's possible.
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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?
As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?
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?
What is the difference between private costs and social 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.
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