OURCES, THE ENVIRONMENT, AND AGRICULTURE CHAPTER 5. Endangered species are protected by the MC which prohibits 6. The socially efficient level of pollution abatement occurs when the is equal to the 5 P 4 7. An externality occurs when the benefits or costs of 3 an economic activity are external and not felt by 2 MCH 8. Externalities lead to market failure because the market fails to Q 9. When a free-rider problem arises, it is often neces- Q1 Q2 sary for - to become involved. a. If there are no restrictions on the firm's choices, 10. Equal treatment of two polluting firms may which technology will the farmer use and what not lead to a cost-effective outcome because quantity will he or she produce? b. Given your response in part a, is it socially effi- 11. A tax on pollution will cause a firm to reduce its cient for there to be no restrictions on produc- pollution until the is equal to the tion? Explain, referring to the areas identified tax rate . in the figure. 12. Soil erosion is a public concern because of the c. If the government restricts production to 21, effects of erosion on would this lead to a socially efficient outcome? 13. If the interest rate is 5% per year, the present d. Now suppose the farmer is required to pay a value of $1 million to be received in 20 years is tax of $E per unit of production. What tech- $_ -. If the money is to be received in nology would the farmer choose? Would a so- 200 years, the present value is only $. cially efficient outcome be achieved? 14. If the interest rate is 5%, then the capitalized value 20. Suppose that two firms have marginal costs of of an investment that pays $8 per year would be abatement as shown in the following figure. $ _ MC1 15. The efficient allocation of water is achieved if the marginal value of water to all users is 16. Groundwater resources suffer from the "Tragedy of N WA the Commons" when 17. Prior to 2006, the largest conservation program funded by the Farm Bill was but since that time _-lands programs have consumed a larger share of the total conserva- 0 10 20 21 tion budget. 18. The Endangered Species Act seeks to protect spe- Firm 1 cies from going extinct by prohibiting anything $ that might put a species in danger of extinction, MC2 5 but it can also create perverse incentives for land- A owners to s_ _, and s. 19. Suppose that a farmer has two ways to produce his or her crop. He or she can use a low-polluting tech- nology with the marginal cost curve MCI or a high- polluting technology with the marginal cost curve 10 20 a2 MCH. If the farmer uses the high-polluting technol- ogy, for each unit of Q produced, one unit of pol- Firm 2 lution is also produced. Pollution causes pollution damages that are valued at $E per unit. The good a. Would a government regulation requiring b produced can be sold in the market for $P per unit. firms to abate 10 units be cost-effective? Expl
