Question

1. Assume that scientific studies provide you with the following information concerning the marginal damages (MDF) and marginal abatement costs (MAC) of sulfur dioxide emissions:

MDF = 400 - 10A

MAC = 100 + 20A

A is the quantity of emissions abated in tons and the MD and MAC are given in dollars per ton. Recall that the socially efficient level of abatement occurs where MDF = MAC.

A. What is the socially efficient level of emissions abatement?

B. What are the MDF and MAC at the socially efficient level of abatement?

C. What happens to the MDF and MAC if you abate one less ton than the socially efficient level? Demonstrate this graphically.

D. What happens to the MDF and MAC if you abate one more ton than the socially efficient level? Demonstrate this graphically.

Answer 1

1. A) At socially efficient levels of emissions abatement, we have

Thus, socially efficient levels of emissions abatement is .

B)At social efficiency, we have and .

C)Abating one less ton than the socailly efficient level causes an increase in MDF (environmental damage increases) from 300 units to 310 units and a decrease in MAC from 300 units to 280 units. (Shown in graph)

D) Abating one more ton than the socailly efficient level causes a decrease in MDF (environmental damage increases) from 300 units to 310 units and an increasse in MAC from 300 units to 330 units. (Shown in graph)

In both cases in (C) and (D), deviation from the socially efficient abatement levels results in deadweight loss.