In the Land of Purity, there is only one form of pollution, called “gunk.” Table 12-18 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations are chosen.
Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis.
Which choices display productive efficiency? How can you tell?
Which choices show allocative efficiency? How can you tell?
In the choice between K and L, can you say which one is better and why?
In the choice between K and N, can you say which one is better, and why?
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 L or M? Why?
The supply and demand conditions for a manufacturing firm are given in Table 12_04. The third column represents a supply curve without taking the social cost of pollution into account. The fourth column represents the supply curve when the firm is required to take the social cost of pollution into account. Identify the equili
ium before the social cost of production is included and after the social cost of production is included.