Principles of Microeconomics

Steven A. Greenlaw, David Shapiro

Chapter 12

Environmental Protection and Negative Externalities - all with Video Answers

Educators

Chapter Questions

Problem 1

Identify the following situations as an example of a negative or a positive externality:
a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.
b. Your neighbor paints his house a hideous color.
c. Investments in private education raise your country's standard of living.
d. Trash dumped upstream flows downstream right past your home.
e. Your roommate is a smoker, but you are a nonsmoker.

Rashmi Sinha

Rashmi Sinha

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Problem 2

Identify whether the market supply curve will shift right or left or will stay the same for the following:
a. Firms in an industry are required to pay a fine for their carbon dioxide emissions.
b. Companies are sued for polluting the water in a river.
c. Power plants in a specific city are not required to address the impact of their air quality emissions.
d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage.

Ayush Kumar

Numerade Educator

Problem 3

For each of your answers to Exercise $12.2,$ will equilibrium price rise or fall or stay the same?

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 4

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.
$$\begin{array}{l|l|ll}\hline \text { Price } & \begin{array}{l}\text { Quantity } \\\text { Demanded }\end{array} & \begin{array}{l}\text { Quantity Supplied without paying } \\\text { the cost of the pollution }\end{array} & \begin{array}{c}\text { Quantity Supplied after paying } \\\text { the cost of the pollution }\end{array} \\\hline \$ 10 & 450 & 400 & 250 \\\hline \$ 15 & 440 & 440 & 290 \\\hline \$ 20 & 430 & 480 & 330 \\\hline \$ 25 & 420 &520 & 370 \\\hline \$ 30 & 410 & 560 & 410 \\\hline\end{array}$$

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 5

Consider two approaches to reducing emissions of $\mathrm{CO}_{2}$ into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermined technologies. In the second approach, the U.S. government determines which technologies are cleaner and subsidizes their use. Of the two approaches, which is the command-and-control policy?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 6

Classify the following pollution-control policies as command-and-control or market incentive based.
a. A state emissions tax on the quantity of carbon emitted by each firm.
b. The federal government requires domestic auto companies to improve car emissions by 2020 .
c. The EPA sets national standards for water quality.
d. A city sells permits to firms that allow them to emit a specified quantity of pollution.
e. The federal government pays fishermen to preserve salmon.

Ayush Kumar

Numerade Educator

Problem 7

An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 8

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 12.6 shows 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?

Sandile Ndlovu

Numerade Educator

Problem 9

The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 10

Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 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.)
a. Using the information in Table $12.8,$ 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.

Jonathan Tapiwa

Jonathan Tapiwa

Numerade Educator

Problem 11

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 12.9 shows the total cost and total benefits (in dollars) of this policy.
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?

Jonathan Tapiwa

Jonathan Tapiwa

Numerade Educator

Problem 12

Consider the case of global environmental problems that spill across international borders as a prisoner's 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.

Ayush Kumar

Numerade Educator

Problem 13

A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwood's forest and grow corn, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection.
a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, 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 $T$ and $R$, decide which one is better. Why?
e. In the choice between T and S, 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 Q or S? Why?

Jonathan Tapiwa

Jonathan Tapiwa

Numerade Educator

Problem 14

What is an externality?

Ayush Kumar

Numerade Educator

Problem 15

Give an example of a positive externality and an example of a negative externality.

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 16

What is the difference between private costs and social costs?

Ayush Kumar

Numerade Educator

Problem 17

In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 18

What is command-and-control environmental regulation?

Ayush Kumar

Numerade Educator

Problem 19

What are the three problems that economists have noted with regard to command-and-control regulation?

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 20

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

Ayush Kumar

Numerade Educator

Problem 21

What is a marketable permit and what incentive does it provide for a firm to account for external costs?

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 22

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

Ayush Kumar

Numerade Educator

Problem 23

As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?

Sandile Ndlovu

Numerade Educator

Problem 24

As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?

Ayush Kumar

Numerade Educator

Problem 25

What are the economic tradeoffs between lowincome and high-income countries in international conferences on global environmental damage?

Banhishikha Sinha

Banhishikha Sinha

Numerade Educator

Problem 26

What arguments do low-income countries make in international discussions of global environmental cleanup?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 27

In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent?

Sandile Ndlovu

Numerade Educator

Problem 28

What does a point inside the production possibility frontier represent?

Ayush Kumar

Numerade Educator

Problem 29

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?

Sandile Ndlovu

Numerade Educator

Problem 30

Would environmentalists favor command-andcontrol policies as a way to reduce pollution? Why or why not?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 31

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 national parks and designates 10 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?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 32

Will a system of marketable permits work with thousands of firms? Why or why not?

Sandile Ndlovu

Numerade Educator

Problem 33

Is zero pollution possible under a marketable permits system? Why or why not?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 34

Is zero pollution an optimal goal? Why or why not?

Ayush Kumar

Numerade Educator

Problem 35

From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?

Sandile Ndlovu

Numerade Educator

Problem 36

Recycling is a relatively inexpensive solution to much of the environmental contamination from plastics, glass, and other waste materials. Is it a sound policy to make it mandatory for everybody to recycle?

Sandile Ndlovu

Numerade Educator

Problem 37

Can extreme levels of pollution hurt the economic development of a high-income country? Why or why not?

Sandile Ndlovu

Numerade Educator

Problem 38

How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?

Sandile Ndlovu

Numerade Educator

Problem 39

Technological innovations shift the production possibility curve. Look at graph you sketched for Exercise 12.13 Which types of technologies should a country promote? Should "clean" technologies be promoted over other technologies? Why or why not?

Sandile Ndlovu

Numerade Educator

Problem 40

Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as $\mathrm{Pm}$ and $\mathrm{Qm}$. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.

Sandile Ndlovu

Numerade Educator

Problem 41

Refer to Table $12.2 .$ The externality created by the refrigerator production was $\$ 100 .$ However, once we accounted for both the private and additional external costs, the market price increased by only $\$ 50 .$ If the external costs were $\$ 100$ why did the price only increase by $\$ 50$ when we accounted for all costs?

Sandile Ndlovu

Numerade Educator

Problem 42

Table 12.12 , shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. $\mathrm{Qs}_{1}$ is the quantity supplied without social costs. $\mathrm{Qs}_{2}$ is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?

Banhishikha Sinha

Banhishikha Sinha

Numerade Educator

Problem 43

A city currently emits 16 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits.
a. Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this city.
b. What is the optimal level of sewage for this city? How can you tell?

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator

Problem 44

In the Land of Purity, there is only one form of pollution, called "gunk." 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 $\mathrm{K}$ and $\mathrm{L},$ 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-andcontrol environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator