Question

In the Land of Purity, there is only one form of pollution, called “gunk.” The table below shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations are chosen.

Combinations. Economic Output. Percent of Gunk Cleaned Up.

J 800 10% cleaned up

K 500 30% cleaned up

L 600 40% cleaned up

M 400 40% cleaned up

N 100 90% cleaned up

Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis.

Which choices display productive efficiency? How can you tell?

Which choices show allocative efficiency? How can you tell?

In the choice between K and L, can you say which one is better and why?

In the choice between K and N, can you say which one is better, and why?

If you had to guess, which choice would you think is more likely to represent a command-and- control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?

Answer 1

. 600, 40% shows productive efficency as the PPF curve bulge out for 600, 40% , which shows this point to be on outer PPF.

. 600 , 40%

In the choice between K and L, L is better as at L both more economic output is there along with more gunk cleaned up

In the choice between K and N, N is better as more % of gunk is reduced with less decrease in economic output.

I guess , PolicyM represent command-and- control environmental policy and Policy L is likely to represent a market-oriented environmental policy because in case of market-oriented environmental policy, pollution is reduced by cheapest options as pollution permits are exchangeable , so is more efficient then command and control policy. Thus point L is more efficent so L represent market-oriented environmental policy.

If you don't understand anything then comment , i'ill revert back on the same . :)