4. Suppose a regulatory authority is in the process of deciding the upper limit for firm...

  

Transcribed Image Text:

4. Suppose a regulatory authority is in the process of deciding the upper limit for firm emissions for a particular industry. However, the agency has come under heavy pressure from various lobby groups. Consider then the following two possible outcomes. (4.a) Suppose that a very strong and well-orchestrated green campaign by militant environmental groups triumphed over the parochial interests of the industry. The significance of the event is realized by the outcome of the regulatory and legislative process. This can be seen in the passage and implementation of a very strict emissions standard imposed on the industry. In the graph below, of a typical firm, sketch the effect of an environmental emissions standard that is too strict. Label this standard as es, and show this in relation to the optimal level emissions e*. (2 points) MAC MD Emissions (4.a.i) In the graph above, also show the loss to society from the imposition of such a standard that is too strict. (3 points) (4.a. ii) Are compliance (abatement) costs too high or too low when compared to the socially optimal level? (2 points) (4.a.iii) Are the damages associated with emissions too high or low when compared with the socially optimal level? (2 points) 4. Suppose a regulatory authority is in the process of deciding the upper limit for firm emissions for a particular industry. However, the agency has come under heavy pressure from various lobby groups. Consider then the following two possible outcomes. (4.a) Suppose that a very strong and well-orchestrated green campaign by militant environmental groups triumphed over the parochial interests of the industry. The significance of the event is realized by the outcome of the regulatory and legislative process. This can be seen in the passage and implementation of a very strict emissions standard imposed on the industry. In the graph below, of a typical firm, sketch the effect of an environmental emissions standard that is too strict. Label this standard as es, and show this in relation to the optimal level emissions e*. (2 points) MAC MD Emissions (4.a.i) In the graph above, also show the loss to society from the imposition of such a standard that is too strict. (3 points) (4.a. ii) Are compliance (abatement) costs too high or too low when compared to the socially optimal level? (2 points) (4.a.iii) Are the damages associated with emissions too high or low when compared with the socially optimal level? (2 points)