environmental economics university question

Assume we have two sources of non-uniformly mixed pollutants and only one receptor. The difference between the two sources is their location vis-a-vis the receptor. A transfer coefficient (ai), i=1,2, captures the constant amount by which the concentration at the receptor will rise if source i emits one more unit of pollution. Table 1 shows the cost-effectiveness for the non- uniformly mixed pollutant. Using this table, answer the following questions:

Table 1: see attached

a) Suppose the concentration at the receptor has to be reduced by 7.5 units in order to comply with the ambient standard set by the policy maker. What is the cost-effective allocation of emission reduced?

b) What is the marginal cost of concentration reduction for each source?

c) What are the total variable costs of emission reduction for both sources?

d) The policy maker considers now an ambient charge to yield the cost-effective allocation in (a). What is the charge imposed on each source?

e) Would your answer in (d) change if the policy maker decides to implement an ambient allowance system? If so, what is the ambient allowance price that will be determined in the market?

 

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