A country called Sherwood is very heavily covered with a...

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?

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?

Key Concepts

Allocative Efficiency

Allocative efficiency is achieved when resources are distributed in a way that maximizes the overall benefit to society, reflecting consumer preferences and societal welfare. This condition is met when the mix of goods being produced represents what society most desires, aligning the marginal rate of transformation with the marginal rate of substitution in the economy.

Opportunity Cost

Opportunity cost is the value of the next best alternative foregone when making a decision. In the context of a PPF, it represents the amount of one good that must be sacrificed to produce an additional unit of another good, highlighting the trade-offs inherent in resource allocation decisions.

Production Possibility Frontier

A production possibility frontier (PPF) is a graphical representation that shows the maximum combinations of two goods or services that can be produced using a fixed set of resources and technology. It illustrates the trade-offs between different choices and highlights the opportunity cost of reallocating resources from one good or service to another.

Productive Efficiency

Productive efficiency occurs when an economy or a production system is operating on its production possibility frontier, meaning that no additional output can be obtained without reducing the output of another good. It indicates that resources are being used in the most cost-effective way possible, without any wastage.

Environmental Policy Instruments

Environmental policy instruments refer to the mechanisms implemented to regulate the environmental impacts of economic activities. They can range from command-and-control policies, which impose specific limits or technologies, to market-oriented policies, such as taxes or tradable permits, which use economic incentives to drive environmental improvements.

Transcript

00:02 Okay, so we are going to be looking at the production possibility curve, the ppc for this particular economy, where we have corn basials in thousands.

00:25 That is the information that is given and you have the number of trees given also in thousands.

00:38 So we know that the ppc, the production possibility curve or frontier, whichever the case you might want, basically shows us a trade -off between what you would find as the environmental protection and what you would need to clear up the land for, which is the corn.

01:05 So that's the trade -off between the two.

01:09 So according to the information that is given for every, there's five combinations that have been given p, where there's nine and somewhere here.

01:22 Let me use my red ink.

01:25 There's going to be nine and five, all right.

01:29 Nine and five is the combination, nine partial, nine thousand partials.

01:35 And 5 ,000 trees.

01:39 And we have point r, which has 7 and 20.

01:43 Point q, which is 2 and 30.

01:49 And we have point t here, which is 6 and 10.

01:54 And point s, which is 2 and 40.

01:58 Okay, so basically as a sketch, this is how you would find your ppc or your p.

02:06 All right.

02:07 So the question now is which points show productive efficiency? so any point on the ppc shows productive efficiency...