Reference no: EM131388802
Microeconomics Uncertainty, Information, Externality Problems Part B, HELP
Midwestern power companies generate much of their electricity by burning coal. Tall smokestacks, required because of concerns about local pollution, carry the sulfurous smoke high into the atmosphere. Substantial evidence suggests that the sulfur is precipitated over the northeastern states and eastern Canada as sulfuric acid. "Acid rain" is believed to cause serious damage to trees and other vegetation, wildlife (especially fish), the exteriors of buildings, and so forth. Some have even suggested that it accounts for higher rates of colon cancer in these areas!
For the purposes of this problem, suppose that each megawatt of electricity produced in the midwest caused $100 worth of acid rain damage in the northeastern United States. Discuss each of the following proposed solutions to the problem. Be sure to consider all of the following questions for each proposal:
i. Is the proposal economically efficient?
ii. How will the proposal affect the welfare of people in the two regions?
iii. Is the proposal technically and politically feasible?
b. Impose regulations on the power companies that would force them to reduce the sulfur content of the smoke to the point where the rain returns to its natural level of acidity.
Need to provide mathematical data (or even graph if necessary) and reasoning.
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