Unformatted text preview:

Resource Economics 262Problem Set #3, 15 pointsDue: February 25, 2021, 4 pm. Two versions of this assignment are posted, a Word version and a pdf version. You may either: (1) type your answers directly on the Word version, convert that to a pdf, and submit the pdf version, or (2) write your answers on a separate document, convert that to apdf, and submit the pdf. You must submit a pdf copy. Do not simply cut and paste material from my lectures.Please include your name and your student ID number on your submission. Also, name the file you submit{your full name}RESECON262HW#3.pdf. (2-3:30pm office hours)Please make sure that you upload2and2submit your assignment when you are done. Warning for MAC users. Graphs in this assignment may not convert correctly if you download the MSWord version of this document with a program other than Microsoft Office. I believe you can install a free version of Microsoft Office through UMass IT. Alternatively you can2download the pdf version of the assignment, write your answers in a separate document, convert that to pdf and submit that document.2Note: All of the questions in this assignment come from Unit 4.*****************************************************************************************1(1) In the following table are the marginal abatement costs of two firms. Note that an entry in the table indicates the cost of reducing emissions by one unit from the previous level. For example, $300 is the additional abatement cost for firm 1 to reduce its emissions from 3 tons to2 tons, and $40 is the cost for firm 2 to reduce its emissions from 7 tons to 6 tons. Marginal AbatementCostsTotal Abatement CostsFirm Emissions Firm 1 Firm 2 Firm 1 Firm 210 $0 $0 $0 $09 $40 $10 $20 $58 $80 $20 $80 $207 $120 $30 $180 $456 $160 $40 $320 $805 $200 $50 $500 $1254 $240 $60 $720 $1803 $260 $70 $910 $2452 $300 $80 $1200 $3201 $340 $90 $1530 $4050 $380 $100 $1900 $500(1.1) Suppose that the Environmental Protection Agency wants to reduce aggregate emissions of the firms to 10 tons by requiring each firm to reduce its emissions to 5 tons. Explain why this will not be a cost-effective way to reduce aggregate emissions to 10 tons? A one or two-sentence answer should suffice. [1 point] This would not be cost effective because firm one has a higher marginal abatement cost then firm two making one spend a large amount more than the other. More specifically, if they were both to reduce to 5 tons firm one would pay 200 while firm two would pay 50.(1.2) How much would you allow each firm to emit if you wanted to reduce aggregate emissions to 10 tons cost-effectively? [1 point] If I wanted to reduce aggregate emissions to 10 tons cost effectively firm 1 would emit 8 tons for $80 while firm 2 would emit 2 tons for $80 as well. This would sum up to a total of ten tons and would be cost effective.(1.3) Calculate the savings in aggregate abatement costs from using the cost-effective way to allocate 10 tons of emissions instead of making the firms reduce their emissions to 5 tonseach. [2 points] The savings in aggregate abatement costs from using the cost-effective way would be as follows: 250 – 160 = $90(2) What is wrong with the following statement? [1 point]If the benefit of a policy to control emissions of some pollutant is greater than the cost of control,then the policy must be efficient.2The issue with this statement is that benefits of a policy regarding control of admissions willalways incur a marginal abatement cost. In other words, to say that a benefit is different thanthe cost of control is incorrect. Benefits (of controlling emissions) will result in a cost of control,the policy is efficient if it finds a more cost-effective way of limiting emissions. (3) Questions (3.1) through (3.5) ask you to use the graph below to examine the (usual) inefficiency of a policy that eliminates all damage from pollution. (3.1) What is the maximum level of emissions that causes no damage? That is, identify the threshold level of emissions. [1 point] E1 is the maximum level of emissions that causes no damage.(3.2) What is the efficient level of emissions? [1 point] E2 is the efficient level of emissions because it is where the marginal abatement cost and marginal damage intersect or are at equilibrium.(3.3) What area(s) in the graph indicate the benefit of reducing emissions from the efficient level to the threshold level? [1 point] B is the area that indicates the benefit of reducing emissions from the efficient level to the threshold level.(3.4) What area(s) in the graph indicate the cost of reducing emissions from the efficient level to the threshold level? [1 point] A is the area that indicates cost of reducing emissions from the efficient level to the threshold level.(3.5) Use your answers about the benefits and costs of reducing emissions from the efficient level to the threshold level to explain why a policy to eliminate pollution damage is inefficient in this situation. [1 point] The reason why this is not an efficient solution (from efficient level to threshold level) for reducing emissions is because the accumulated net aggregate abatement cost is to large and therefore outweighs the benefits. 3(4) For the pollutant illustrated in the graph below, what is the efficient level of emissions? Explain your answer. [2 points] There is no efficient level of emissions above 0. (5) Suppose that the firms in some industry emit an air pollutant that harms people who are exposed to the pollutant. This situation is illustrated in the graph below. Now suppose that a new and cheaper emissions-control technology becomes available and is adopted by theindustry. (5.1) Which function in the graph will change with the industry’s adoption of the new emissions-control technology, the MAC or MD function? [1 point] The MAC function will change.(5.2) Which way will this function shift, up or down? [1 point] It will shift down because thenew technology is cheaper.(5.3) As a result, does the efficient level of emissions increase, decrease or stay the same? [1 point] It will decrease as the MAC function shifts down efficient level of emissions (equilibrium) will lower as


View Full Document

UMass Amherst RES-ECON 262 - Problem Set #3

Documents in this Course
Load more
Download Problem Set #3
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Problem Set #3 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Problem Set #3 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?