1) A bill was recently introduced in the US Congress to limit greenhouse gas emi
ID: 1203362 • Letter: 1
Question
1) A bill was recently introduced in the US Congress to limit greenhouse gas emissions from electricity generation and require electricity producers to generate a minimum percentage of power using renewable fuels, with some emission rights to be auctioned. The Congressional Budget Office estimated that the government would receive $846 billion from auctions and would spend $821 billion on incentive programs and compensation for higher energy prices. Electricity producers would spend $208 million a year to comply with the new rules.
a) Would the proposed legislation achieve production efficiency? Why or Why not.
b) Is the $846 billion that electricity producers would pay for the right to emit greenhouse gasses part of the opportunity cost of producing electricity? Why or Why not.
c) Is the $821 billion that the government would spend on incentive programs and compensation for higher energy prices part of the opportunity cost of producing electricity? Why or Why not.
d) Is the $208 million that electricity producers will spend to comply with the new rules part of the opportunity cost of producing electricity? Why or Why not.
Explanation / Answer
a) No. Production efficiency can. be achieved when a good is produced with the lowest possible average cost . The legislation is adding to the costs of electricity companies. On the whole electricity companies will spent $846 billion + 208 million for auctions for emission and complying with the new rules.
b) Yes , because this is the additional cost they have to inccur for being a part of the electricity industry. They wouldnt have to incur this cost had produced something else which didn't emit green house gases. They could have spent the money on other activities eg- employee welfare, building additional infrastructure.
c) Yes, , the government is spending the $821 billion from the money on compensation for higher energy prices. It is there by foregoing spending it in other activities within the economy.
d)Yes, the energy producers are foregoing spending this is other activities and instead spending it in complying with the new rules . This is indeed an opotununity cost for being in the electricity industry.
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