Section B: Calculations and Graphical Analysis Questions

Section B: Calculations and Graphical Analysis Questions. Study these questions.

Managing Municipal Solid Waste.

1. Consider the following model of a hypothetical market for MSW management services:

MPB = 18.35 − 2Q

MPC = 2 + Q

MEC = 0.25Q,

where Q is the number of trash containers per household per month.

1. Quantitatively determine the effect of the resource misallocation due to:
   1. the presence of the negative externality, and
   2. the use of a flat fee pricing system in the presence of a negative externality.
2. Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively.

Sustainable Development: International Environmental Agreements and International Trade.

2. Suppose that under the Mexico- USA Air Quality Agreement, both countries agree to a combined 18 percent SO₂ abatement standard. Further assume that the following SO₂ abatement cost functions have been estimated by each country:

TAC_US = 635 + 2.5(A_MEX)²

MAC_US = 9 A_MEX

TAC_CAN = 1750 + 9(A_USA)²

MAC_CAN = 3 A_USA

where A_MEX and A_USA represent the percent of SO₂ abatement achieved by Mexico and Mexico, respectively, and each TAC and MAC is measured in millions of dollars.

1. If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain.
2. Assuming a trading program is enacted; find the cost savings associated with a cost-effective abatement solution?
3. What must be the price of a tradeable permit to achieve the cost-effective abatement allocation?