Reference no: EM133333840
Ground-level ozone (O3), commonly known as smog, arises from a sunlight-induced chemical reaction between nitric oxides (NOx) and volatile organic compounds (VOCs), which come from vehicle and industrial emissions. It's the largest source of air pollution contributing to human health problems, including asthma attacks that sometimes result in death. Ozone also reduces crop yields and causes various other damages to natural ecosystems. Reducing ozone concentrations is costly, requiring that more expensive emissionsreducing technologies be installed in power plants, factories and on vehicles. Alternatively, we can drive more fuel-efficient and less powerful cars, drive less, or otherwise use less energy and consume fewer goods derived from polluting industrial activities. Suppose that we have investigated the various ways of reducing ozone concentrations, and sorted them from lowest cost per unit of ozone abatement to highest cost per unit of abatement. We then summed up the total cost, measured in billions of US dollars, needed to achieve needed to achieve different levels of abatement, and fit a curve to it. Suppose this curve is given by the function C(X) = 0.4X + 0.1X2 , where X is the total amount of abatement in ozone parts per billion (ppb). The benefits of abatement, in terms of collective willingness to pay for reduced mortality, morbidity, higher crop production and healthier natural environs is B(X) = 10X - 0.06X2.
1. What is the social cost of the first unit of abatement? What's the social cost of the 5 th, 10th, and 20th units of abatement?
(Hint: I'm looking for marginal cost in each case.)
2. What is the social benefit of the first unit of abatement? What's the social benefit of the 5th, 10th, and 20th units of abatement?
(Hint: I'm looking for marginal benefit in each case.)
3. Draw a graph that plots the total cost of abatement and the total benefits of abatement. Label the optimal level of abatement and the value to society of that level of abatement.
4. Draw a graph that plots the marginal cost of abatement and the marginal benefits of abatement. Label the optimal level of abatement and the value to society of that level of abatement.
5. Suppose current ozone concentrations, before any abatement, are typically 50 ppb. An environmental interest group argues that the benefits of reducing concentrations to zero are larger than the costs. Are they correct? What's wrong or missing from their argument?
Econ 358 5-week Homework 1 University of Hawai'i at M¯anoa
6. Again assuming current concentration is 50 ppb, how much would have to be spent on abatement to achieve the economically efficient level of ozone concentrations?
7. What is the net benefit, relative to the status quo of 50 ppb, of achieving the economically efficient level of ozone concentrations?
8. How do you suppose the cost and benefit functions might be estimated? Briefly discuss various aspects you might consider. Try to be creative-this is very hard to do in practice.
9. What are three reasons given by Keohane and Olmstead, for someone interested in other aspects of environmental studies to learn environmental economics? Can you think of any other reasons?