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Representative Waxman of California and Markey of Massachusetts proposed a law to limit greenhouse gas emissions from electricity generation and require electricity producers with some rights to emit to be auctioned. The Congressional Budget flice estimated that the government would receive $846 billion from auctions and whould spend $821 billion on incentive programs and compensation for higher energy prices. Electricity producers would spend $208 million a year to comply with the new rules. (Think of these dollar amounts as dollars' worth of other goods and services.)
1. Would the Waxman-Markey law achieve production efficiency?
2. Is the $846 billion that electricity producers would pay for the right to emit part of the opportunity cost of reenhouse gasses producing electricity?
3 . Is the $821 billion that the government would spend on incentive programs and compensation for higher energy prices part of the opportunity cost of roducing electricity?
4. Is the $208 million that electricity producers will spend to comply with the new rules part of the opportunity cost of producing electricity?
5. The people of Foodland have 40 hours of labor a day to bake pizza and bread. Table 1 shows the maximum quantity of either pizza or bread that Foodland can bake with different quantities of labor. Can Foodland produce 30 pizzas and 30 loaves of bread a day? If it can, is this output efficient, do the people of Foodland face a tradeoff, and what is the opportunity cost of producing an additional pizza?
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