Review Questions

Combos Corn Bushels (thousands) Number of Trees (thousands) P 9 1 Q 2 7.5 R 7 5 S 2 1 T 6 2 TABLE 12.11 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?

Review Questions

14 . What is an externality? 15 . Give an example of a positive externality and an example of a negative externality. 16 . What is the difference between private costs and social costs? 17 . In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain. 18 . What is command-and-control environmental regulation? 19 . What are the three problems that economists have noted with regard to command-and-control regulation? 20 . What is a pollution charge and what incentive does it provide for a firm to take external costs into account? 21 . What is a marketable permit and what incentive does it provide for a firm to account for external costs? 22 . What are better-defined property rights and what incentive do they provide to account for external costs? 23 . As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not? 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? 25 . What are the economic tradeoffs between low-income and high-income countries in international conferences on global environmental damage? 26 . What arguments do low-income countries make in international discussions of global environmental clean-up? 27 . In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent? 28 . What does a point inside the production possibility frontier represent?

Critical Thinking Questions

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? 30 . Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not? 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 living in poverty—in each of these plans. Which plan seems more likely to help the elephant population? 32 . Will a system of marketable permits work with thousands of firms? Why or why not? 33 . Is zero pollution possible under a marketable permits system? Why or why not? 34 . Is zero pollution an optimal goal? Why or why not? 35 . From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not? 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? 37 . Can extreme levels of pollution hurt the economic development of a high-income country? Why or why not? 38 . How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries? 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?

Problems

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 Pm and 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 socially optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output. 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? 42 . Table 12.12 shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied with social