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Consider the industry for making plastic cups. The process of producing the cups generates pollution. Assume the marginal damage function of pollution is given by MD = 4E, where damages are measured in dollars and E is the level of emissions. Assume further that the marginal abatement cost function is given by MAC = 100 − E, where costs are measured in dollars and E is the level of emissions.
(a) Propose the efficient emission standard for this industry.
(b) Assume the Environmental Protection Agency has a limited budget (an easy assumption to believe) and can only detect violations of the standard 25 percent of the time. Assume that firms know this, and the industry adjusts accordingly. If the government set a fine of $80 for each unit in excess of the efficient level, what is the expected level of emissions in the industry?
(c) Sketch a graph that depicts the cost to society from undercompliance with the efficient emission standard. (d) Propose a fine for caught violations that would implement the efficient level of emissions. Justify your proposal.
In the US, realized capital gains are taxed at 15% if they are held for more than a year. Suppose instead that we include realized capital gains (those held for more than a year and less than a year) in income instead so that they are added to an ind..
increase because the total amount of human capital in the country will increase as the new owners learn how to farm.
You own a retail establishment run by a store manager who receives a flat salary of $80,000. If you set up another store as a franchise with incentive compensation to the franchisee, what would be a reasonable total compensation range that the franch..
What do you consider to be the biggest current market failure in the U.S. economy? Why? How should the failure be addressed?
How do we work the categorical operation called obversion? What is the purpose of studying a sample? In studying a sample, what is meant by the term sampling frame?
Vasco likes spare ribs, R, and fried chicken, C. His utility function is: U(C, R) = 40R^2C. His weekly income is $180, which he spends on only ribs and chicken. If he spends $20 for a slab of ribs and $10 for a chicken, what is his optimal consumptio..
The state government collected all taxes due, but its tax revenues were equal to $40 million each year. What happened to the sales tax base between 2006 and 2007? What could account for this result?
How can queuing promote equity?
Draw a correctly labeled aggregate demand and aggregate supply graph illustrating an economy that was experiencing a recessionary gap. From the perspective of classical economics, model what adjustment is likely to take place in either a product or f..
The head of the accounting department at a major software manufacturer has asked you to put together a pro forma statement of the company's value under several possible growth scenarios and the assumption that the company’s many divisions will remain..
What is the independent variable? What is the dependent variable? What is the intercept? What is the slope? Which equation represents demand side? Which equation represents supply side? What are endogenous variables in this model? What are exogenous ..
Draw the complete Solow growth model, identify equilibrium and label completely and correctly. Now suppose that there is a negative shock to total factor productivity. Draw the implications of this change on your graph. Identify the changes to per ca..
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