Determine the range of abatement within which policy achieves positive net benefits.
Suppose that the benefits and costs of water quality policy have been estimated as follows:
MSB = 40 – 0.8A MSC = 10 + 0.2A
TSB = 40A – 0.4A2 TSC = 10A + 0.1A2,
where A is the percentage of pollution abatement and the benefits and costs are measured in thousands of dollars.
Positive net benefits are achieved wherever TSB>TSC. Since both functions begin at the origin (because they have no vertical intercept values), we know the range begins at 0. To find the upper end of the range, solve for the point where TSB intersects with TSC.
TSB = TSC
40A – 0.4A2 = 10A + 0.1A2
0.5A = 30
A = 60 percent
Therefore, any abatement level between 0 and 60 percent achieves positive net benefits, i.e., where TSB>TSC.
You might also like to view...
The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
Suppose the marginal propensity to consume is 0.75 . If government purchases increase by $100 billion and the extra expenditure is financed with a net tax of $100 billion, by how much will output change?
a. -$400 billion b. $100 billion c. $400 billion d. $0 e. -$100 billion
A price floor policy establishes a minimum price for a market, and the policy is said to be binding if the market equilibrium price is less than the floor price. What impact does a binding price floor have on the market outcome?
A. Shortage B. Excess demand C. Excess supply D. No impact, and the market price and quantity equal their equilibrium values
For a linear demand function, Q = a + bP +cM + dPR , the income elasticity is
A. -c. B. c. C. c(M/Q). D. c(Q/M). E. -c(Q/PR).