ECON
Lecture 10 Notes

Lecture 10 Notes - Econ 101 Introduction to Microeconomics...

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  Econ 101 Introduction to Microeconomics Professor Richard V. Burkhauser 10 10 Externalities
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Econ 101 – Professor Burkhauser Key Concepts Externality, p. 204 Internalizing an externality, p. 207 Coase theorem, p. 210 Transaction costs, p. 211 Pigovian tax, p. 213
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Figure 10.1 Pollution and the Social Optimum Equilibrium Quantity of Aluminum 0 Price of Aluminum Demand (private value) Supply (private cost) Social cost Q OPTIMUM Optimum Cost of pollution Q MARKET Demand Tax
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Econ 101 – Professor Burkhauser Question 10.1: Beneficiaries of a Pollution Tax The major beneficiaries of a tax on the output of sulfur dioxide in the production of plastic dolls are: a) consumers of dolls b) producers of dolls c) workers in doll factories d) those who value clean air
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Econ 101 – Professor Burkhauser Question 10.2 Market for Pollution The table below gives the cost schedule for reducing sulfur dioxide emissions: Cost of Eliminating Firms A B C D First unit $100 $200 $500 $800 Second unit $200 $400 $550 $1,000 Third unit $300 $600 $700 $2,000 Fourth unit $600 $700 $900 $4,000
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Econ 101 – Professor Burkhauser Question 10.2 (continued) If the federal government wanted to reduce pollution from 16 to 12 units, it should charge a pollution fee of: a. $250 b. $350 c. $650 d. $950 e. $1,050
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Econ 101 – Professor Burkhauser Question 10.3 Market for Pollution The table below gives the cost schedule for reducing sulfur dioxide emissions: Cost of Eliminating Firms A B C D E First unit $50 $45 $45 $30 $70 Second unit $60 $55 $70 $50 $80 Third unit $70 $70 $90 $80 $90 Fourth unit $85 $90 $100 $110 $100
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Econ 101 – Professor Burkhauser Question 10.3 (continued)
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