Ebook Economic (13th Canadian edition): Part 2
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Ebook Economic (13th Canadian edition): Part 2
The Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2 regulates our interactions with people and property Local zoning I a ws regulate the ways in which the land that we own or occupy may be used. Regulatory commissions set rates for electricity, natural gas, local telephone service, and a host of other goods and services Seat belts brake lights turn Ebook Economic (13th Canadian edition): Part 2signals, air bags, internal door panels, bumpers, and catalytic converters are compulsory and regulated in quality-all in a single industry. The listEbook Economic (13th Canadian edition): Part 2
goes on and on. A good case can be made that various governments in Canada have more effect on the economy through reg ulation than through taxing andThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2icular, we examine the negative externalities that lead to environmental degradation and the van OUS government policies designed to address them. As we will see. policies intended to protect the environment do not always do so in an efficient manner. One of the central themes in this chapter is tha Ebook Economic (13th Canadian edition): Part 2t the information available to the regulatory agencies, especially regarding firms' technologies for reducing pollution. IS generally incomplete. ThisEbook Economic (13th Canadian edition): Part 2
lack of good information leads to the result that market-based environmental regulations are usually more successful than methods based on the governThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2e the issue of how greenhouse-gas emissions are contributing to global climate change, the technical challenges associated with reducing these emissions, and policies designed to address this enormous challenge.© LEARNING OBJECTIVESIn this chapter you will learn o how an externality can be internali Ebook Economic (13th Canadian edition): Part 2zed, and how this can lead to allocative efficiency.0 why direct pollution controls are often inefficient0 how market-based policies, such as emissionEbook Economic (13th Canadian edition): Part 2
s taxes and ưadable pollution permits, can improve economic efficiency.o seme basic facts about greenhouse gases and how they relate to the growing prThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2nment Canada's webste www.ec.2c.caỠPractse with Study Guide Chapter 17. Exercise 1.17.1 The Economic Rationale for Regulating PollutionPollution is a negative externality. As a consequence of producing or consuming goods and services, “bads” are produced as well. Steel plants produce smoke in additi Ebook Economic (13th Canadian edition): Part 2on to steel. Farms produce chemical runoff as well as food. Logging leads to soil erosion that contaminates fish breeding grounds. Cars, trucks, and fEbook Economic (13th Canadian edition): Part 2
actories, by burning carbon-rich fossil fuels, such as coal, oil, and natural gas, produce carbon dioxide and other greenhouse gases that contribute tThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2ction and consumption automatically generates pollution. Indeed, fewhuman endeavours do not have negative pollution externalities.FIGURE 17-1 A Pollution Externality in a Competitive MarketQuantityA negative externality implies that a competitive free market will produce more output than the allocat Ebook Economic (13th Canadian edition): Part 2ively efficient level. If the externality can be internalized, allocative efficiency can be achieved. A competitive free market will produce where theEbook Economic (13th Canadian edition): Part 2
demand and supplycurves intersect—chat is, at Ọ*’ and //. If each unit of output of this good also generates an external cost of MẼC, then social marThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2rginal cost—that is, at Q*. The competitive free market therefore produces too much output.If firms in this industry arc now required to pay a tax of $MEC per unit of output, the private marginal cost curve, MCf, shifts up to MC> The externality will thus he internalized because firms will now be fo Ebook Economic (13th Canadian edition): Part 2rced to pay the full social cost of their production. The new-competitive equilibrium will be p*, Q*, and allocative efficiency will be achieved.PolluEbook Economic (13th Canadian edition): Part 2
tion as an ExternalityPolluting firms who are profit maximizers do not regard a clean environment as a scarce resource and therefore fail to consider The Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2ffected than just its suppliers, employees, and customers. Its water-discharged effluent hurts the fishing boats that ply nearby-waters, and its smog makes many resort areas less attractive, thereby reducing the tourist revenues that local motel operators and boat renters can expect. The profit-maxi Ebook Economic (13th Canadian edition): Part 2mizing paper mill neglects these external effects of its actions because its profits are not directly affected by them.As shown in Figure 17-1, allocaEbook Economic (13th Canadian edition): Part 2
tive efficiency requires that the price I the value that consumers place on the marginal unit of output) be just equal to the marginal social cost I tThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2xceeds private marginal cost because the act of production generates costs for society that are not faced by the producer.By producing where price equals private marginal cost and thereby ignoring the externality, the firms are maximizing profits but producing too much output. rhe price that consume Ebook Economic (13th Canadian edition): Part 2rs pay just covers the private marginal cost but does not pay for the external damage. The social benefit of the last unit of output (the market priceEbook Economic (13th Canadian edition): Part 2
) is less than the social cost (private marginal cost plus the extra cost to society from the externality). Reducing output by one unit would increaseThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2e entire social cost of their production is called internalizing the externality. This leads them to produce a lower level of output, as shown in Figure 17-1. Indeed, at the optimal level of output, where the externality is completely internalized, consumer prices would just cover the social margina Ebook Economic (13th Canadian edition): Part 2l cost of production. We would have the familiar condition for allocative efficiency that marginal benefits to consumers are just equal to the marginaEbook Economic (13th Canadian edition): Part 2
l (social) cost of producing these benefits.internalizing the externality A process that results in a producer or consumer taking account of 3 previouThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2nefit to society.In order to internalize the externality successfully, it is necessary to measure its size accurately. Looking at Figure 17-1, we must be able to measure the magnitude of the marginal external cost, Al EC. In practice, however, external costs are quite difficult to measure. This meas Ebook Economic (13th Canadian edition): Part 2urement is especially difficult in the case of air pollution, where the damage is often spread over hundreds of thousands of square kilometres and canEbook Economic (13th Canadian edition): Part 2
affect millions of people.The Optimal Amount of Pollution AbatementNotice from Figure 17-1 that the allocatively efficient outcome still has some polThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2uce goods and services without generating some environmental damage. The economic problem is then to determine how much environmental damage to allow or. equivalently, how much pollution abatement (reduction) to implement. In general, it is nor optimal to eliminate all pollution.Zero environmental d Ebook Economic (13th Canadian edition): Part 2amage is generally not allocatively efficient.rhe economics of determining how much pollution to prohibit, and therefore how much to allow, is summariEbook Economic (13th Canadian edition): Part 2
zed in Figure 17-2, which depicts the marginal benefits and marginal costs of pollution abatement, rhe analysis might be thought of as applying, for eThe Economics of Environmental ProtectionIn almost everything we do. we are subject to some form of government regulation. The system of criminal law Ebook Economic (13th Canadian edition): Part 2.Note that the figure is drawn in terms of the amount of pollution that is prevented (or abatedl rather than in terms of the total amount of pollution produced. We do this because pollution abatement (rather than pollution itself) is a “good” of economic value, and we are more familiar with applying Ebook Economic (13th Canadian edition): Part 2 the concepts of supply and demand for goods with positiveFIGURE 17-2 The Optimal Amount of Pollution AbatementThe optimal amount of pollution abatemeEbook Economic (13th Canadian edition): Part 2
nt occurs where the marginal cost of reducing pollution is just equal to the marginal benefits from doing so. MB represents the marginal benefit of reGọi ngay
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