Microeconomics

Question 11 The primary cause of global warming is carbon dioxide, which enters the atmosphere in varying amounts from different countries but is distributed equally around the globe within a year. In an article in The Boston Globe (July 3, 1990), Martin and Kathleen Feldstein argue that the correct approach to global warming is not to ask individual countries to stabilize their emissions of carbon dioxide at current levels, as some have suggested. Instead, they argue that carbon dioxide emissions should be reduced in countries where the costs are least, and the countries that bear that burden should be compensated by the rest of the world. a. Why is an international cooperation necessary to reach an efficient outcome? The negative externalities of carbon dioxide emissions are global in nature. Solve this problem, the benefit is also global. Efficient solution is to reduce the cost of society as a whole, and society as a whole here, is the world. The cost of the various countries to reduce carbon dioxide emissions. Not the same, on the level of stability of the various countries, some countries the high cost of some low-cost, emissions. Able to maintain the same circumstances, countries with high abatement costs can be multi-emission, low-cost countries may reduce the emissions of some So as to promote the world's total level of benefits.

b.

Is it possible to devise a compensation scheme such that all countries would be better off than under a system of uniform emission reductions? Explain.

The system of compensation, compared with all countries the same emission reduction, the whole human welfare improved. If there is pollution emission in countries with low abatement costs to the abatement costs. Countries with high transfer mechanism, the efficiency of all countries is likely to be improved. Due to the contamination of the negative external, can countries with high costs of pollution tax, then tax compensation to those who reduce the pollution dyed countries to achieve. The design of such a system possible for emission reduction is monitoring of national carbon dioxide emissions, a tax on high-emission countries, and countries with subsidy reduction. Such incentive reduction occurred in the countries with the lowest abatement costs. If country abatement costs, just pay taxes to. If a fixed emission reduction, the countries with low abatement costs, compliance, and will not reduce emissions

Question 12 13. (This problem is challenging.) There are three industrial firms in Happy Valley. Firm x y z Initial Pollution Level 50 70 90 Cost of Reducing Pollution By 1 Unit 30 45 50

The government wants to reduce pollution to 150 units, so it gives each firm 50 tradable pollution permits. a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation?

Following the table Z buy 50 tons, because their emission reduction treatment cost are high. X sell 50 tons because of its low cost of government. In this case total cost of abatement is X Costs = $30 X 50 = $ 1500 Y Costs = $45 X 20 = $ 900 Z Costs = unit license, so do not have to pay the costs Total cost of $ 2,400 Fir m Initial Pollution Level Cost of Reducing Pollution By 1 Unit 30 45 50 Trading without proper license Emission Emission reduction reduction cost 0 0 20 900 40 2000 2,900 Trading with proper license Purchase allowed -50 0 50 Emission reduction 50 20 0 Discharge amount 0 50 90 Mitigatio n cost 1500 900 0 2400

x y z

50 70 90

b. How much higher would the costs of pollution reduction be if the permits could not be traded? If the license cannot be traded, X Costs = $30 X 0 = $ 0 Y Costs = $45 X 20 = $ 900 (Y will have to pay the abatement costs) Z Costs = $50 x 40 = $ 2,000 The total cost of $ 2,900 This Cost is higher than the cost of pollution rights can be traded.