It is well documented that the carbon monoxide (CO) emissions from combustible engines increase in colder climates. This implies that the associated damages are expected to be less severe in summer months than in winter. Nonetheless, air quality control authorities use a standard for CO that is uniform throughout the year with no allowance for seasonal effects. Use this information and the following model to answer the questions:
MSB of CO abatement in winter=350-0.5A
MSB of CO abatement in summer+ 140-0.2A
MSC of CO abatement= 0.2A where A is the level of CO abatement.
a. Graph the MSB and MSC functions on the same diagram
b. Assume the government sets a uniform standard for winter and summer at A=500. Support or refute this policy based on the criterion of a
allocative efficiency, using your model to explain your response.
c. If you were in charge of setting policy for CO emissions, what action would you recommend to ensure an allocatively efficient outcome across the two seasons
Graph the MSB and MSC functions on the same diagram.
See EXCEL for graph.
Under a uniform abatement standard of 500, the MSB in winter equals $100 and the MSB in summer equals ...
MSB and MSC functions are analyzed.
Environmental economics: externalities and costless bargaining. Coase Theorem and a simple example of how costless bargaining leads to an efficient outcome.
Jack and May are the only residents of a small island. Jack operates a papermill, and has costs given by MPC = 10+2Q. Jack gets a price of $24 for each unit of paper he sells. May hates the pollution that the mill produces, and has damages given by MEC = Q + 2.
(a) Assume that property rights to the environment are established, and Jack has them. Further, assume that Jack and May can engage in costless bargaining. What will Jack's production level Q_ be in equilibrium?
(b) What is the minimum amount May would have to pay for Jack to produce at Q_? What is the maximum amount May would be willing to pay for Jack to produce at Q_.
(c) If May had the property rights, what is the minimum payment Jack would have to make to produce at Q_? What is the most he would be willing to pay?View Full Posting Details