Deck 4: Pollution Problems: Must We Foul Our Own Nests

Question 1

Define and list both explicit and implicit costs associated with your taking this class.

Answer 1

Everything that we do in life has a cost. As the saying goes, there is no such thing as a free lunch. With regards to taking an economics class, costs extend beyond the tuition, books, and materials that the students are responsible for.
There are the costs of maintaining the facility and its various rooms, hiring and compensating the faculty and staff, and providing a safe learning environment that are taken on by the college or university. These are examples of explicit costs , the costs incurred by the producer to hire the resources necessary to carry on the business.
There is also the quality of work that each faculty or staff member contributes to the university that offers the class. This is an example of an implicit cost , the cost incurred for producing a self-employed or self-owned resource necessary to operate the business. The student's ability to contribute to the effectiveness of the course by attending it is done under his or her own power and thus another implicit cost.

Question 2

When no one owns a given piece of property, it is often used as a dumping ground. Does this mean that the pollution could be effectively controlled simply by providing someone with an ownership right to the property?

Answer 2

One issue which contributes to the problem of business pollution is the ownership (or lack thereof) of the land. It is from the land that resources are mined, derived, or otherwise exploited; overexploitation of these resources feeds into the pollution levels.
When there is no one to lay claim to a piece of land and its resources, that area is subject to the public to use as they see fit. Public land cannot be policed.
However, assigning ownership to a plot of land may not be an adequate solution. One reason is that by assigning land ownership to a business, permission is basically given to exploit the land's resources for all that they are worth.
Additionally, making land private property may deter extra pollution from the public. However it won't eliminate it. A large expanse of land would be very hard to police unless guards or rangers were stationed at every manageable area all of the time; the time and money for such resources would be financially counterproductive.

Question 3

Distinguish between economic and accounting costs. Which is a better measure of the true cost to society of producing a particular good or service?

Answer 3

The production of goods or services will always incur some sort of cost. Being able to distinguish between the types of costs incurred is important for getting an accurate measure of the true costs to society that passed on by production.
Costs that can be tracked or finitely measured or assessed a definite monetary value are categorized as accounting costs. Explicit costs are a form of accounting costs. Because they can be assigned definite value, these costs are most likely to appear in a ledger or bank book. Thus, accountants and economists often rely solely on these costs when assessing the cost to society.
Less likely to be included are the implicit costs. These are costs that are incurred via labor or other self-employed/self-owned means of production. Because these costs are not necessarily based on tangible items or results, they are harder to assign a value to and are often left out from ledgers or financial analyses.
Both explicit and implicit costs are considered to be economic costs resulting from the production of goods or services. Only when both types of costs are taken into account will an accurate assessment of the true cost to society be realized.

Question 4

Would you expect a difference in the severity of a natural disaster based on the degree of a country's property rights?

Question 5

From an economic perspective, explain why pollution takes place.

Question 6

How do the creation of a market for pollution rights and cap and trade approaches differ?

Question 7

Show graphically and explain why polluters face an incentive to overproduce their product.

Question 8

Show graphically and explain why those who bear the burden of pollution face an incentive to under-produce their products.

Question 9

Explain how polluting firms effectively force other firms to bear part of their legitimate production costs.

Question 10

The equilibrium reached by a market typically reflects a resource allocation that maximizes social well-being. Explain why this will not be the case when externalities in production exist.

Question 11

Discuss: "The goal for pollution control should be the complete elimination of all polluting discharges."

Question 12

Show graphically and explain how taxes can be used to cause polluting firms to voluntarily cut their polluting discharges to the socially optimal level.

Question 13

Under what circumstances would it make economic sense to eliminate all of a particular type of pollution?

Question 14

Explain how the creation of a pollution rights market might work. Suppose, after a few years, it was decided that too much pollution was being allowed under the plan. What could be done?

Question 15

Relative to using a tax on polluting discharge as a means of pollution control, what advantages does the creation of a market for the right to pollute offer? Are there disadvantages?

Question 16

Is concern for the environment a normal good? Discuss in the context of the destruction of rain forests in particularly poor parts of the world.

Question 17

Recent research indicates that secondhand smoke from cigarettes endangers the health of those who are in sustained contact with smokers. Show graphically and explain why the market, operating on its own, will lead to an overproduction and overconsumption of cigarettes.

Question 18

Who should pay the cost of disposing of the packaging of products, the consumer or the producer?

Question 19

Define and give examples of externalities in consumption. Be sure to list externalities which have both positive and negative effects.

Question 20

In the Clean Air Act of 1990, the federal government created a market for the "right to pollute." How successful has this program been both in terms of reducing air pollution and in terms of the cost of doing so?

Question 21

Define and give examples of externalities in production. Be sure to list externalities which have both positive and negative effects.

Question 22

Suppose the government is using a tax on polluting discharges to reach the socially optimal level of pollution control. If, over time, it is decided that the optimal level of control is greater than originally thought, should the government raise or lower the tax?