ECON111_Autumn2015_Tutorials_Tutorial_7 - ECON111 Chapters 10 and 11 Solution Chapter 10 1 Many observers believe that the levels of pollution in our

ECON111_Autumn2015_Tutorials_Tutorial_7 - ECON111 Chapters...

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ECON111 Chapters 10 and 11 Solution Chapter 10 1. Many observers believe that the levels of pollution in our society are too high.a.If society wishes to reduce overall pollution by a certain amount, why is itefficient to have different amounts of reduction at different firms?b.Command-and-control approaches often rely on uniform reductions among firms.Why are these approaches generally unable to target the firms that shouldundertake bigger reductions?c.Economists argue that the appropriate corrective taxes or tradable pollution rightswill result in efficient pollution reduction. How do these approaches target thefirms that should undertake bigger reductions? Answer 2. Consider the market for fire extinguishers.a. Why might fire extinguishers exhibit positive externalities?b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve.c. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ. d. If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome Answer 2.
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