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Chapter 12: Q.44 (page 299)

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?

Short Answer

Expert verified

a). The production choices can be shown graphically as follows:

b) On the PPP curve, every point reflects production efficiency. As a result, J, L, AND N are productively efficient.

c) Allocative efficiency is a subjective concept that is influenced by personal preferences. As a result, there is no way to determine allocating efficiency in this scenario because there are no provided preferences.

d) L is preferable because it displays higher economic production and higher environmental quality.

e) N will be superior since it demonstrates more productivity efficiency (all the points on PPP curves show production efficiency).

f) In this scenario, M stands for command and control environmental policy, which means less production, whereas L stands for market-oriented environmental policy, which means more production at no additional cost to the environment.

Step by step solution

01

Given Information

Depending on the kind of environmental restrictions you adopt, the table illustrates different combinations of economic production and gunk reduction.

02

Content Introduction

The production possibilities curve (PPC) is a graph that shows all of the output combinations that are conceivable given current resources and technology. The production possibilities frontier (PPF), sometimes known as the PPC, displays scarcity and tradeoffs.

03

Explanation (part a)

The production choices can be shown graphically as follows:

04

Explanation (part b)

On the PPP curve, every point reflects production efficiency. As a result, J, L, AND N are productively efficient.

05

Explanation (part c)

Allocative efficiency is a subjective concept that is influenced by personal preferences. As a result, there is no way to determine allocating efficiency in this scenario because there are no provided preferences.

06

Explanation (part d)

L is the better option since it has a larger economic output and a better environmental quality.

07

Explanation (part e)

N will win because it has a higher productivity efficiency (all of the points on the PPP curves represent production efficiency).

08

Explanation (part f)

M stands for command and control environmental policy, which implies less output, whereas L stands for market-oriented environmental policy, which means more production at no additional environmental cost.

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Most popular questions from this chapter

Consider the case of global environmental problems that spill across international borders as a prisoner鈥檚 dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of 10, or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of 16, but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of 32, which is divided equally between the two countries.

a. In Table 12.10, fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.

What are better-defined property rights and what incentive do they provide to account for external costs?

What does a point inside the production possibility frontier represent?

What is a pollution charge and what incentive does it provide for a firm to take external costs into account?

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 12.6shows 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)
20406080
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
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