Question 1

Assume the atmosphere of an urban area is able to reabsorb 4,000 tonnes of pollutants per year.The schedule below shows the price polluters would be willing to pay for the right to dispose of 1 tonne of pollutants per year and the total quantity of pollutants they would wish to dispose of at each price.  (a) If there were no emission fee, how many tonnes of pollutants would there be and how much greater would this amount be than the capacity for re-absorption?
(b) What pollution fee should the urban authorities charge to solve the problem?
(c) What would happen in this market for pollution rights if quantity demanded increased by 1,000 tonnes at each price?

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Question 2

Describe how a market for externality rights would work in terms of supply and demand.

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Question 3

Evaluate: "Pollution is undesirable.Therefore, all pollution should be banned."

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Question 4

Draw a supply and demand graph on the below diagram that illustrates the market for pollution rights.Label the axes and curves.Then show what happens to price and quantity when the demand for pollution rights increases in the market.

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Question 5

What is the economic rationale for liability rules and lawsuits? What are the limitations with this approach?

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Question 6

Evaluate.Economy in government requires that government minimize its spending.

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Question 7

How could you use the Coase theorem to predict what would happen when smoke from a factory created dirty air and slightly acid rain for all the residents in the area in a one-kilometre radius of the plant?

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Question 8

What resource problem is created by positive externalities and what methods are suggested for dealing with this problem?

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Question 9

What are negative and positive externalities? How do they affect supply and demand curves?

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Question 10

How do direct controls and specific taxes affect negative externalities? Briefly explain in terms of supply and demand.

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Question 11

What are quasi-public goods and why does the government provide them?

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Question 12

What resource problem is created by negative externalities and what methods are suggested for dealing with this problem?

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Question 13

The demand and supply in a market are represented by the equations P = 50 - .2QD and P = 20 + .3QS.A spillover cost in production equal to $2 per unit exists in this market.(a) What are the equilibrium price and quantity?
(b) What are the optimal price and quantity?
(c) How large must a specific tax in this market be to eliminate the market failure? Is the tax equal to the difference between the equilibrium price and the optimal price?

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Question 14

The following table shows marginal costs and benefits of the optimal quantity of pollution abatement that will occur at a local factory.  (a) What is the optimal level of pollution abatement? Why?
(b) If the marginal benefit of pollution abatement were to increase by $30,000 at each level because of the factory's desire to improve its image and environment, what would the optimal level be? Why?
(c) What might cause the optimal level of pollution abatement to be 400 tonnes?

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Question 15

Assume the atmosphere of an urban area is able to reabsorb 8,000 tonnes of pollutants per year.The schedule below shows the price polluters would be willing to pay for the right to dispose of 1 tonne of pollutants per year and the total quantity of pollutants they would wish to dispose of at each price.  (a) If there were no emission fee, how many tonnes of pollutants would there be and how much greater would this amount be than the capacity for re-absorption?
(b) What pollution fee should the urban authorities charge to solve the problem?
(c) What would happen in this market for pollution rights if quantity demanded increased by 1,000 tonnes at each price?

Accepted Answer