Quiz 5 Take Home

Quiz 5 Take Home - ECON 260 Take Home Quiz 5 The Rules:...

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ECON 260 Take Home Quiz 5 The Rules: This part of the quiz is due Friday, April 25 in class. The review session for this quiz will be Wednesday, April 23 from 4:30-5:30PM. Quizzes turned in late will be penalized in proportion to the cost imposed on me. If I am not inconvenienced, I won’t impose a penalty. Make sure you put your name on the document you turn in. You may work with others in class; however, you are to turn in your own quiz and include the names of all others who worked with you. Application 16.0 Cost-effective Gunk Control Two plants are emitting a uniformly mixed pollutant called gunk into the beautiful sky over Tourist-Town. The city government decides that it can tolerate total emissions of no more than 100 kgs of gunk per day. Plant G has marginal reduction costs of 100-4x, and is currently polluting at a level of 25, while plant K has marginal reduction costs of 150-y, and currently pollutes at a level of 150. (x and y are the level of emissions at each plant). 1. What is the cost-effective pollution level for each plant if total pollution must equal 100? Suppose the city government knows marginal reduction costs at the two plants. In this case could the city obtain cost-effective pollution reduction using a CAC approach? If so, how? 2. In reality, why might the city have a hard time getting this information? What are the two "Incentive-Based" policies that could be used to get a cost-effective reduction of pollution to 100 units, without knowing the MC of the two firms? Be specific. Discuss two advantages each method has over the other. 3. Suppose the authorities are considering a tradeable emission permit system in which they give half the permits to each firm, or a tax system. If both systems work perfectly, how much will the firms have to pay, in total, for pollution reduction under the two schemes? Could this explain why Tourist-Town would be more likely to adopt a permit give-away system? Yes. 4. Several theoretical studies have shown that Incentive-Based policies might generate huge cost-savings, with the IB approach being as much as 22 times cheaper as a CAC approach. Discuss at least three reasons why Tourist-Town might not get such substantial savings in moving from CAC regulation to a marketable permit system. 5.
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This note was uploaded on 04/29/2008 for the course ECON 260 taught by Professor Ward during the Spring '08 term at Lewis & Clark.

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Quiz 5 Take Home - ECON 260 Take Home Quiz 5 The Rules:...

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