c. All public buildings owned by those receiving federal funds must be
modified where necessary to ensure access for disabled individuals.
d. The Department of Agriculture should curtail the use of pesticides by
farmers.
e. Given its large projected deficit, the federal government should
postpone capital spending to repair 80-year-old bridges.- Two large manufacturing firms are major sources of airborne pollutants
in a metropolitan area. Currently, each firm generates about 15 million
units of pollution per year. The firms’ costs of reducing pollution are
C 1 2Q 1 .1Q 12 and C 2 .15Q 22 , where Q 1 and Q 2 denote the
amounts of pollution cleaned up by the respective firms. The social benefit
of reducing pollution is estimated to be B 9Q .2Q^2 , where Q
denotes the total amount of pollution cleaned up; that is, Q Q 1 Q 2.
a. Write the expressions for the marginal benefit and marginal costs of
cleanup, that is, MB, MC 1 , and MC 2.
b. Suppose the EPA seeks to implement pollution standards that
maximize net benefits to society (B C 1 C 2 ). Find the optimal
values of Q 1 and Q 2 by setting MB MC 1 MC 2. Explain why the
firms face different quantity standards.
c. Suppose, instead, that the regulator sets a uniform pollution tax of $4
per unit. How much pollution will each firm clean up?
d. What tax should the regulator set to implement the optimal cleanup
amounts in part (b)? Explain. - Three blocs of nations are beginning negotiations aimed at reducing the
emissions of greenhouse gases (GHGs). The blocs are the United States,
the European Community, and a coalition of developing nations (DNs).
Table A shows each bloc’s current GHG emissions and the annual cost of
reducing emissions to lower levels. The extent of global warming depends
on the totalGHG emissions of the three blocs. Each bloc would benefit
from global emission reductions. Table B lists these benefits (measured
488 Chapter 11 Regulation, Public Goods, and Benefit-Cost AnalysisTABLE A
Costs of Reducing
Emissions ($ Billions
per Year)United States Europe Developing Nations
Population 300 million 400 million 2 billion
National Income $14 trillion $16 trillion $6 trillion
Emissions Cost Emissions Cost Emissions Cost
Status Quo 1.2 $ 0 1.0 0 1.4 0
1.0 22 .8 18 1.2 12
.8 60 .6 42 1.0 30
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