# ECON2 UCSD Marginal Benefit and Damage Process for Calculation Answers

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Please Write down the process for calculation problem and at least three sentence for discussion questions.

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Economics Problem Set
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1

ECONOMICS PROBLEM SET

2
QUESTION 1

Part a
Total cost for commuters = 75Q2
𝛿𝑦

The marginal cost = 𝛿𝑄 = 150Q
Total cost for non-commuters = 15Q2
𝛿𝑦

The marginal cost = 𝛿𝑄 = 30Q
The total number of emission = 20
The optimal number of emissions = 14
The total number of emissions that need to be reduced under tax = 20 – 14 = 6 emissions.
Out of these 6 emissions, we need to determine how many emissions each type of drivers will
reduce under tax.
For commuter drivers;
MC = MB
150Q = 150
Q=1
For non-commuters;
MC = MB
30Q = 150
Q=5
Therefore, out of the 6 emissions that need to be reduced under tax;
Commuters = 1 emission
Non-commuters = 5 emissions.
Part b
Reducing the emissions by 30%;
Commuters = 10 × 30% = 3 emissions
Non-commuters = 10 × 30% = 3 emissions
Cost of reduction by commuter drivers;
MC = 150Q
Cost = 150 (3) = \$450

ECONOMICS PROBLEM SET

3

Cost of reduction by non-commuters;
MC = 30Q
Cost = 30 (3) = \$90
Such a shift is a good ideas because none of the drivers will be free riding out of the emissions
they produce. The shift will also ensure that each driver pays for their own emissions and no one
will be benefiting more as result of producing equal number of emissions.
The only condition under which the answers would change is if the office of the governor would
take the responsibility of correcting the negative externality. If the office of the governor chooses
to pay for the cost of emissions, then the answer would change.
Part c
The overall success of the program of controlling the number of emissions will be affected as a
result of shifting from Pigouvian tax to cap-and-trade program. The success will be affected on
lowering the cost of reducing the pollution. Again, the success of the program will be affected in
that, there will be more government involvement and creation of new markets that are subject to
manipulation.
Part d
Let Q1 be commuter emissions and Q2 be non-commuter emissions
Socially optimal emissions = 12
Q1 + Q2 = 12
Price for commuter emissions = 150Q
Price for non-commuter emissions = 30Q
But at equilibrium the price is the same;
150Q1 = 30Q2
150Q1 - 30Q2 = 0
Solve the following equations simultaneously;
Q1 + Q2 = 12
150Q1 - 30Q2 = 0
Substitute Q1 = 12 – Q2 in equation 2
150(12 – Q2) - 30Q2 = 0
1800 - 150Q2 – 30Q2 = 0
1800 – 180Q2 = 0
Q2 = 10
Q1 + Q2 = 12

ECONOMICS PROBLEM S...

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