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    Tutorial 7 Externalities (Source: Kolstad) November 2020

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    Jeevan G
    This document contains three summaries of externality scenarios: 1. A scenario involving the demands of two consumers, Ravi and Mona, for air quality supplied at a marginal cost. The efficient amount of air quality is determined. 2. A scenario involving an airport that produces noise pollution decaying with distance, and an employee Ashish's costs of noise damage and commuting living at various distances from the airport with and without compensation. 3. A scenario involving pollution from a cheese factory damaging two groups, with marginal damage curves derived and compared to the factory's marginal savings from polluting to determine the efficient level.

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    Tutorial 7 Externalities (Source: Kolstad) November 2020

    Uploaded by

    Jeevan G
    54 views1 page
    This document contains three summaries of externality scenarios: 1. A scenario involving the demands of two consumers, Ravi and Mona, for air quality supplied at a marginal cost. The efficient amount of air quality is determined. 2. A scenario involving an airport that produces noise pollution decaying with distance, and an employee Ashish's costs of noise damage and commuting living at various distances from the airport with and without compensation. 3. A scenario involving pollution from a cheese factory damaging two groups, with marginal damage curves derived and compared to the factory's marginal savings from polluting to determine the efficient level.

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    20tut7

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    This document contains three summaries of externality scenarios: 1. A scenario involving the demands of two consumers, Ravi and Mona, for air quality supplied at a marginal cost. The efficient amount of air quality is determined. 2. A scenario involving an airport that produces noise pollution decaying with distance, and an employee Ashish's costs of noise damage and commuting living at various distances from the airport with and without compensation. 3. A scenario involving pollution from a cheese factory damaging two groups, with marginal damage curves derived and compared to the factory's marginal savings from polluting to determine the efficient level.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views1 page

    Tutorial 7 Externalities (Source: Kolstad) November 2020

    Uploaded by

    Jeevan G
    This document contains three summaries of externality scenarios: 1. A scenario involving the demands of two consumers, Ravi and Mona, for air quality supplied at a marginal cost. The efficient amount of air quality is determined. 2. A scenario involving an airport that produces noise pollution decaying with distance, and an employee Ashish's costs of noise damage and commuting living at various distances from the airport with and without compensation. 3. A scenario involving pollution from a cheese factory damaging two groups, with marginal damage curves derived and compared to the factory's marginal savings from polluting to determine the efficient level.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Tutorial 7 Externalities [Source: Kolstad] November 2020

    1. Consider an air basin with only two consumers, Ravi and Mona. Suppose the
    demand for air quality is given by qR=1 - p where p is Ravi’s marginal willingness to
    pay for air quality. Similarly, Mona’s demand is given by qM = 2 - 2p. Air quality can
    be supplied according to q = p where p is the marginal cost of supply.
    a. Show the aggregate demand plots for air quality along with individual demands.
    b. What is the efficient amount of air quality?

    2. Consider an airport that produces noise that decays as the distance (d), in
    kilometres, from the airport increases: N(d) = 1/d2. Ashish works at the airport.
    Ashish’s damage from noise is Rs. 100 per unit of noise and is associated with
    where Ashish lives. His costs of commuting are Rs. 100 per kilometre (each way).
    The closest he can live to the airport is d = 0.1 km.
    a. Write an expression for Ashish total costs (noise and transportation).
    b. What is the distance Ashish will live from the airport in the absence of
    compensation for the noise? What are his total costs?
    c. Suppose Ashish is compensated for his damage, wherever he may live. How
    close to the airport will he choose to live? How much will he be compensated?

    3. Two types of consumers (workers and retirees) share a community with a polluting
    cheese factory. The pollution is nonrival and nonexcludable. The total damage to
    workers is p2 where p is the amount of pollution and the total damage to retirees is
    3p2. Thus marginal damage to workers is 2p and marginal damage to retirees is 6p.
    According to an analysis by consulting engineers, the cheese factory saves 20p – p2
    by polluting p, for a marginal savings of 20 - 2p.
    a. Find the aggregate (including both types of consumers) marginal damage for the
    public bad.
    b. Draw the marginal savings and aggregate marginal damage curves with pollution
    on the horizontal axis.

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