question:
5. Repeat Problem 4 for the case where pollution affects both lines of production as well as both individuals' utility.4. In considering producer-to-consumer externalities in Appendix 5.3, it is stated that where there are multiple sources of emissions, and where only individuals suffer from pollution, each source should be taxed at the same rate. Prove this, and derive the tax rate.2. Demonstrate that Equations 5.1 and 5.2 embody an assumption that there are no externalities in either consumption or production. Suppose that B's consumption of Y had a positive effect upon A's utility, and that the use of K by firm X adversely affects the output of firm Y. Show how the utility and production functions would need to be amended to take account of these effects. 3. In the chapter and in Appendix 5.3 we consider the two-person consumption- to-consumption externality. As invited in the Appendix, show that an efficient outcome could be realised if a planner required the sufferer to bribe the generator at the appropriate rate, and work out what that rate is.b. Find the profit-maximising output of wood pulp, assuming the seller can obtain marginal revenue equal to the marginal benefit to society derived from wood pulp. c. Find the pulp output which maximises social net benefits d. Explain why the socially efficient output of wood pulp is lower than the private profit-maximising output level.1. Suppose that a wood pulp mill is situated on a bank of the River Tay. The private marginal cost (MC) of producing wood pulp (in f per ton) is given by the function MC = 10 +0.5Y where Y is tons of wood pulp produced. In addition to this private marginal cost, an external cost is incurred. Each ton of wood pulp produces pollutant flows into the river which cause damage valued at $10. This is an external cost, as it is borne by the wider community but not by the polluting firm itself. The marginal benefit (MB) to society of each ton of produced pulp, in f, is given by MB = 30 - 0.5Y a. Draw a diagram illustrating the marginal cost (MC), marginal benefit (MB), external marginal cost (EMC) and social marginal cost (SMC) functions.4. Economists see pollution problems as examples of the class of adverse externality phenomena. An adverse externality is said to occur when the decisions of one agent harm another in an unintended way, and when no compensation occurs. Does this mean that if a pollution source, such as a power station, compensates those affected by its emissions, then there is no pollution problem? 5. While some economists argue for the creation of private property rights to protect the environment, many of those concerned for the environment find this approach abhorrent. What are the essential issues in this dispute?1. 'If the market puts a lower value on trees as preserved resources than as sources of timber for construction, then those trees should be felled for timber.' Discuss. 2. Do you think that individuals typically have enough information for it to make sense to have their preferences determine environmental policy? 3. How is the level of provision of national defence services, a public good, actually determined? Consider a practical method for determining the level of provision that would satisfy an economist
