dal.brightspace.com C ch + D2L Assn3 (MAC and MD Framewor... Search Results | Course Hero Z Z TABLE - Z Table. Z Score Tab. S Men Hoodies & Sweatshirts ISH. S Hypemode Men Cartoon Graphi. S Homme Men Letter & Floral Pri. ED Q T V 1 of 3 + 120% > > concepts refer to the monetary non-equity weighted versions. Note that linear equation are used for analytical simplicity and do not reflect reality. Problem 1: Derive the MAC-MD Framework from the Pigou Framework Here, we extend the Pigou market framework from Assn 2 to develop the Marginal Abatement Cost - Marginal Damage (MAC-MD) framework. This allows a shift of focus away from goods and services to the unintended residual byproducts and we will use the framework to investigate policies that directly target the residual byproducts. The Pigou Framework for the typical consumption baskets (answers to Assn 2 is illustrated below). Figure 2: Pigouvian Market Failure in the Private Passenger Vehicle. Market Due to Negative Externalities (with a Pigouvian Tax and Quota) $ [ LEGEND [changes due to tax ] uchick total tax = Area [ C +D + E + F + 9] 5 195,000 " ) ATScons . = - Area [ B + C+ D+K+ N] 11) ATSProd = Area [B - [E+F + L+M+4) ] iii) ATSPrivate = Area [K+ L + N+ M] mcnow Litax. iv ) ATCEXT _ _ Area [I+ J + K+ N to OR = - Area CRIMINtol v ) ATSSOC = + Area [ It J +0] 0 7 (t) margin Fax SEQyotal LEXAERNAL 104,000 $104,000 # 91,000 A 78,000- B 7 Pm = 52,000- 39 9000 13,000 the Social 20 QM = 26 30 T Quantity Passenger Vehicles 40 50 52 chicles ( mill / year )dal.brightspace.com ch + D2L Assn3 (MAC and MD Framewor... Search Results | Course Hero Z Z TABLE - Z Table. Z Score Tab. S Men Hoodies & Sweatshirts |SH. S Hypemode Men Cartoon Graphi. S Homme Men Letter & Floral Pri. ED Q T V 2 of 3 + 120% > > From assignment 2, the marginal consumer benefits (maximum marginal willingness to pay), marginal producer costs (minimum marginal willingness to accept), and marginal external costs of gasoline cars per unit time were respectively as follows: MBCons (Q) = MWTPCons.(Q) = 104,000 - 2000Q [1] MCProd (Q) = MWTA(Q) = 13,000 + 1500Q [2] MCExternal(Q) = 26,000 + 1500Q [3] where Q represents millions of passenger vehicles/ year and marginal cost, benefit and price (P) units are in $/passenger vehicle. a) Find the marginal private surplus function, MSPriv (Q) by subtracting the MCProd (Q) from the MBCons (Q) equations ([1] - [2] above as in class). b) Assume that each passenger vehicle causes 1 unit of pollution residual biproduct (which can be thought of as a basket of damaging residual byproducts such as air, water, and soil pollution, ecosystem and species destruction, roadkills, etc.). Let "E" represent the number of "pollution units" such that Q = E. Given this, substitute E for Q in the MSPri equation to find the marginal private surplus as a function of E, MSPrivate(E) and the marginal abatement cost as a function of E, MAC(E). c) Similar to b), substitute E for Q in the MCExt. to find the marginal damage equation as a function of E, MD(E). d) Using graph paper or plot to scale using lined paper, label the MAC and MD functions with E on the x-axis (in pollution units/y) and y-axis units in $/pollution unit. e) Use algebra to find the socially efficient pollution levels (ESE) and socially efficient price (PSE) of pollution and compare with the competitive market level of pollution (EBAU) and market price of pollution (assuming no externality internalization). Compare these with the competitive market and socially efficient output levels found in Assignment 2 (see graph above). f) Label the following on your graph using letters with a legend: i) Business as usual (market) level of pollution units (EBAU). ii) Socially efficient level of pollution units (ESE) iii) Total Private Surplus at EBAU, ESE and the TSPriv. forgone due to abatement from EBAU to ESE (called Total Abatement Costs at ESE = TAC(ESE)) . iv) Total damages(TD) at EBAU, ESE and TD saved due to abatement from EBAU to ESE. v) Total social surplus at EBAU, ESE and the change in TSSoc. due to abatement from EBAU to ESE where TSSoc (E) = Tot. private surplus (E)- Total damages (E).dal.brightspace.com ch + D2L Assn3 (MAC and MD Framewor... Search Results | Course Hero Z Z TABLE - Z Table. Z Score Tab. S Men Hoodies & Sweatshirts |SH.. S Hypemode Men Cartoon Graphi. S Homme Men Letter & Floral Pri. ED 2 of 3 + 120% > > MAC(E) c) Similar to b), substitute E for Q in the MCExt. to find the marginal damage equation as a function of E, MD(E) d) Using graph paper or plot to scale using lined paper, label the MAC and MD functions with E on the x-axis (in pollution units/y) and y-axis units in $/pollution unit. e) Use algebra to find the socially efficient pollution levels (ESE) and socially efficient price (PSE) of pollution and compare with the competitive market level of pollution (EBAU) and market price of pollution (assuming no externality internalization). Compare these with the competitive market and socially efficient output levels found in Assignment 2 (see graph above). () Label the following on your graph using letters with a legend: i) Business as usual (market) level of pollution units (EBAU). ii) Socially efficient level of pollution units (ESE) iii) Total Private Surplus at EBAU, ESE and the TSPriv. forgone due to abatement from EBAU to ESE (called Total Abatement Costs at ESE = TAC(ESE)) iv) Total damages(TD) at EBAU, ESE and TD saved due to abatement from EBAU to ESE. v) Total social surplus at EBAU, ESE and the change in TSSoc. due to abatement from EBAU to ESE where TSSoc. (E) = Tot. private surplus (E)- Total damages (E). vi) Total Deadweight Loss (DWL) of the market allocation. vii) The monetary value of the DWL of the market allocation. g) Find the constant marginal Pigou tax that could be charged on each unit of pollution to achieve social efficiency, the total tax collected and total tax saved by private parties due to abatement from EBAU to ESE. Assume full compliance. h) Find the socially efficient quota of pollution units and label on your graph. Note that a quota on emission is referred to as an "emissions standard". i) The total private cost of compliance (TCCPrivate) to the policy includes abatement costs and any taxes paid minus subsidies received. Calculate the TCCPrivate for each of the tax policy and the quota (assuming they are given away) and label on your graph. Based on these TCCs, which policy are the private parties likely to prefer? j) Comparative Statics refers to changing a exogenous constants in the model to see how this will change equilibrium or efficient values of the endogenous parameters, here Pse and Qse. For the Note that we are looking at the average passenger vehicle here, the tax would be lower on a Smart car vs. a Hummer, if I had not used linear curves, and if I used a lower carbon price (I assumed damages of $500/tonne which mainstream economists would consider high).EDV