Question

To determine the amount of total costs faced by a polluter or the society from a given amount of emission reduction, we compute

A. the area under MD graph.

B. the area under MAC graph.

C. the area between MD and MAC graph.

D. the height of MD graph.

If the damages from any unit of emissions is the same, then it implies that

A. MAC graph is horizontal.

B. MAC graph is upward sloping.

C. MD graph is horizontal.

D. MAC graph is vertical.

10) A polluter, under a liability law, reduces its emission level because the law

A. tells it pay a pollution fee for each unit of emissions it produces.

B. tells it pay to anyone who suffers from pollution damages.

C. limits how much emissions it can produce.

D. tells it to reduce all of its emissions.

Answer 1

SOLUTION:-

1   option (C) is correct.

The area below the MAC is total abatement cost and the area below MD is total damages. At the intersection of two curves MAC and MD the sum of two cost is minimum, which consider the area between MAC and MD graph.  Total costs faced by a polluter or society we compute the area between MD and MAC graph

Hence option (C) is correct.

2 option (C) is correct.

MAC curve is related with the additional cost of reduction of the pollution by one more units, due to which cost of production is not damaged.

While, the MD curves indicates the damage occured by each additional level of emission because MD remains always constant and remain horizontal.

If the damages from any unit of emissions is the same, then it implies that MD graph is horizontal. Usually the MD curve shows a positive relation between emissions and the marginal damages. As the emissions increase, the additional damage with every unit emitted increases. If the damages from every unit of emissions are the same, the marginal damages to the society will also remain the constant. This would give a horizontal MD curve. The emissions would increase at a constant marginal damage to the society.Hence option (C) is correct.

Hence option (C) is correct.

10. option (B) is correct.

A polluter, under a liability law, reduces its emission level because the law tells it pay to anyone who suffers from pollution damages. According to the Liability Law, the damage caused should be attributed to the polluter. The originator of the damage should compensate the third-party affected by his/her actions. The social costs of polluter's actions cannot be transplanted on anyone else. The emission level reduces due to internalization of the social costs.

Pollution laws states that if a person inflicts a damage on another party, liability rules allow the damage costs to be attributed to the person who caused the damage. The originator of a damage will be forced to pay, and he will not be able to transplant some of the social costs of his action on someone else.