Embedded Files
B. Suppose the government wants to limit the amount of production and sets the total quantity to be produced in the market to 400. The government decides to achieve this goal by limiting each company's total production to 200 units. How will this affect each company? Is this an efficient solution - the least profitable pollution will be cleaned up?
1. Consider the goods provided by local governments (such as the Town of Bedford) and classify them according to excludability and rivalry. Should these goods be provided by the government based on the concept of market failure?
A. Police protection in a town
B. Snow plowing of roads
C. Roads
D. Public health programs
E. Public parks
F. Library
G. Trash Collection
H. Animal Control
I. Public Education
2. There are two ways to protect your car from theft. The Club is visible to a thief and makes it difficult for a thief to take your car. Lojack is invisible to a thief and makes it easier for the police to catch a thief after he has stolen a car. Which anti-theft device creates a positive externality and which creates a negative externality? Are there any policy implications to this analysis?
3. Frank’s manure farm is located next to Fran’s restaurant. Currently, Frank makes $200 in profits from running his farm. Fran would have $300 in profits if her restaurant was not affected by the manure farm. However, as could be expected, because of the manure farm, her profits are zero.
A. How is the air a common resource? How is the manure farm a case of a negative externality?
B. How would Frank and Fran solve this problem if Frank has the right to pollute the air?
C. How would the problem be solved if Fran had the right to clean air?
D. What would be the outcome if Frank’s manure farm had profits of $400 and Fran had the right to clean air?
4.The equations to the right show the supply curves for two companies that dump pollution into a river. Each company's supply curve represents its cost of production. The production of each unit of output produces the same amount of pollution - this means that each item produced is equally polluting. The current market price of the good they sell is $10.
A. How much will each company produce if the current market price for the good it is producing is $10. How much will be the total quantity produced?
C. Suppose the government wants to limit the amount of production and sets the total quantity to be produced in the market to 400. The government decides to achieve this goal by reducing the total production of each company by 75 units. How will this affect each company? Is this an efficient solution - the least profitable pollution will be cleaned up?
D. Suppose the government wants to limit the amount of production and sets the total quantity to be produced in the market to 400. The government wants to do this through a tax on each quantity the company sells. How much of a tax will the government have to charge to reach its goal of a total quantity produced of 400? Is this an efficient solution - the least profitable pollution will be cleaned up?
5. The table to the right shows the information for three polluting firms in Happy Valley. The government wants to reduce the level of pollution in Happy Valley to 120 units.
A. What would be the cost to the businesses if each firm had to pay to reduce their level of pollution to 40 units? What is the total cost of reducing to 120 units?
B. The government gives each firm 40 tradable pollution permits. Under this system a firm can only pollute if it has a permit. Who sells and who buys permits? How many are sold?
C.What would be the expected price for the permits? How much would companies pay to reduce pollution?
D. What could environmental groups do if they wanted to reduce pollution below the 120 units allowed by the government?
Class Problem # 1 - Barney and Fred live next to each other in the neighborhood of Nimby in Sunshine Valley. Barney is a collector of modern art, and he just bought a large statue of a pink balloon dinosaur for $1000 (this was the most he was willing to pay for the statue). Barney likes the statue so much that he put in his front yard. Fred is horrified by the statue and he believes it is lowering the value of his house by $1500 – this matters to him because he is trying to sell his house.
1. How is this case an example of an externality?
2. Why can the Coase Theorem be used to solve this problem?
3. According to the Coase Theorem, how would this problem be resolved?
4. Before Barney and Fred reach an agreement, the Town Historical Commission of Sunshine Valley says that Nimby is a historic district and that statue of the pink balloon dinosaur violates the rules for the historic district and should be taken down. How has the ruling of the Town Historic Commission changed the agreement that would have been reached by Barney and Fred?
Class Problem # 2 - The equations to the right show the supply curves for two companies that pollute the air in Crystal City. Each company's supply curve represents its cost of production. The production of each unit of output produces the same amount of pollution - this means that each item produced is equally polluting. The current market price of the good they sell is $10.
B. The government gives each firm 20 tradable pollution permits. Under this system a firm can only pollute if it has a permit. Who sells and who buys permits? How many are sold?
C.What would be the expected price for the permits? How much would companies pay to reduce pollution?
D. What could environmental groups do if they wanted to reduce pollution below the 60 units allowed by the government?
B. Suppose the government wants to limit the amount of production and sets the total quantity to be produced in the market to 400. The government decides to achieve this goal by reducing the total production of each company by 175 units. How will this affect each company? Is this an efficient solution - the least profitable pollution will be cleaned up?
C. Suppose the government wants to limit the amount of production and sets the total quantity to be produced in the market to 400. The government wants to do this through a tax on each quantity the company sells. How much of a tax will the government have to charge to reach its goal of a total quantity produced of 400? Is this an efficient solution - the least profitable pollution will be cleaned up?
Class Problem # 3 - The table to the right shows the information for three polluting firms in the Fantastic Forest. The government wants to reduce the level of pollution in the Fantastic Forest to 60 units.
A. What would be the cost to the businesses if each firm had to pay to reduce their level of pollution to 20 units? What is the total cost of reducing to 60 units?
A. How much will each company produce if the current market price for the good it is producing is $10. How much will be the total quantity produced?
Page updated
Report abuse