the following is example work done in da past
ANSWERS TO ECONOMICS QUESTIONS
by
Name:
Course:
Tutor:
University:
8th July 2011
Question 1
a) Internalizing externality means changing the private the costs or any benefits so that they become equal to social costs or benefits (Robert, 1991 p. 115).
b) This depends on the externality. A Pigouvian will achieve efficiency in the market for some negative externality-creating product. The Pigouvian subsidy, on the other hand, will achieve efficiency in the market for some positive externality- creating product.
Case1: how Pigouvian tax achieves efficiency for some negative externality (Scott, 2003 p. 88).
Image from: Environmental economics and management, Scott C p 88
By setting the unit tax equal to the MEC at QE, which is shown by distance ab, the MPC curve will shift up to the MPC1. The equilibrium output will be determined by the intersection of the MPCt and MSBr. This is the efficient production level i.e. QC
Question 2
a)
b) Assume the government sets a uniform standard for winter and summer at A= 500.
Under the uniform 500 abatement standard,
MSBW=350-0.5*500= 100
MSBS= 140-0.2*500= 40
MSCW= MSCs=0.2*500=100
The standard does not correspond to the level of abatement for both seasons, thus this is not an efficient abatement level is where MSB=MSC (Nicholas, 2008 p. 37).
c) Actions I would recommend to ensure an efficient outcome across the two seasons,
The two abatement standards will be needed for efficiency. For each season, abatement targets will be established where MSC= MSB (MSC equals its respective MSB function). This will assure an efficient solution for each of the season:
The e efficient winter season solution will be:
MSBS=MSCW
350-0.5A=0.2A
0.7A=350 Aw=500
The summer solution efficient solution will be:
MSBS=MSCS
140-0.2A=0.2A
0.4A=14 AS=350
AW and AS corresponds to the abatement level at each intersection.
Question 3
a) The competitive equilibrium will arise where MPB=MPC. Since MEB=0 in this case, MPB=MSB. To find MPC, subtract the MEC from the given MSC.
MPC=MSC-MEC= 2+0.2Q
Setting MPC equal to MPB and then solving will yield:
2 + 0.2Q=20-0.4Q, so 0.6Q= 48, Q=80 thousand pounds
Substituting Q into MPC or MPB functions will give PC:
PC=2+0.2(80) or 50-0.4(80) = $18
The efficient equilibrium is found by first setting MSC= MSB and solving for QE:
2+0.4Q=50-0.4Q
0.8Q=48, thus QE=60 thousand pounds
By substituting into either the MSC or the MSB you get the PE:
PE = 2+0.4(60) or 50-0.4(60) = $ 26
An illustration of the calculations
REFERENCES
Bruce LH, Stavins, RN, & Vietor RHK, 2003, Environmental Protection and Social Responsibility of Firms, Respective from law Economics and Business, Washington, DC: Resources for the Future. Pp. 98-106.
Costanzia R, 1991, The Management of Science and Suitability, Columbia University, Pp. 112-119.
Nicholas AA, 2008, Environmental Law, Policy and Economics: Reclaiming the Environmental Agenda, MIT Press, Pp. 38-69.
Paul R, 2000, Public Policies for Environmental Protection, Washington, DC: Resources for the Future. Pp. 78-96
Scott, JC, 2003, Environmental Economics and Management Theory, Policy and Applications Canada. Pp. 67-88.