Suppose that the state of Michigan is attempting to set a better water quality s

Question

Suppose that the state of Michigan is attempting to set a better water quality standard due to the news that lead was found in Flint. Water quality is measured as percent of lead abated (A), the marginal social benefit (MSB) and marginal social cost (MSC) of abatement has been estimated as follows:

MSB = 40 – 0.35A
MSC = 36 + 0.5A

The state’s department of environmental protection sets the standard at 20 units.

A) Is this standard set efficiently, too stringently, or too leniently? (Explain your reasons thoughts, math required show your work)

B) If this abatement level is does not end in an efficient equilibrium then what is the equilibrium point, if it does, then show why? (in any case show your work).

Explanation / Answer

A.) A=20 units

Efficient equilbrium implies MSC=MSB

36 + 0.5A= 40 – 0.35A

0.85A=4

A=4.7

So A =20 is too stringently.

B.)So A=20 is not an efficient equilibrium since,

MSB=40 – 0.35A=40-0.35(20)=33

MSC= 36 + 0.5A=36+0.5(20)=46

MSC>MSB, so it is not an efficient equilibrium.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.