AAEC 1006: Week 2 notes
AAEC 1006: Week 2 notes AAEC 1006
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This 3 page Class Notes was uploaded by Shayna M on Sunday September 18, 2016. The Class Notes belongs to AAEC 1006 at Virginia Polytechnic Institute and State University taught by Dr. Mike Ellerbrock in Fall 2016. Since its upload, it has received 6 views.
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Date Created: 09/18/16
AAEC 8/29 Economic growth is the ability to produce more of everything. On a graph, growth is represented by a whole new PPC curve Economists say that there is an optimal level of pollution in the environment. This is the same as saying there is an optimal level of cleanliness It makes no sense to achieve 0% pollution or 100% cleanliness At some point the marginal cost of cleanup outweighs the marginal benefit Most cost curves are U-shaped because of economies of scale Marginal always means 1 more, so the sum of the marginals always tells you the total rd Externalities are when some benefits or costs are imposed on a 3 party o If producing power causes pollution and acid rain, we’re not paying the full cost of it o Solution to externalities: internalize it. Get the producer to pass on true cost to the consumer. AAEC 8/31 In everything in life, we’re constantly seeking the point of optimality What’s the environmental pollutant that we want to gain perfection in regards to? Nuclear waste. It’s so devastating we have a 0 tolerance of nuclear accident. Does this refute the point of optimality? No marginal benefit outweigh costs. Such as Chernobyl, the curves don’t even cross. Environmental quality in economics Prevention vs. clean-up What’s the shape of marginal cost curve for clean-up? The cost goes up to 100% clean The cost of prevention also goes up to 100% The most cost effective approach is to accept some of both things; when prevention costs more than clean-up, STOP and vice versa, the cross is the optimal amount of both You can’t do better economically than the pink area The market has power to guide human behavior Put a price on pollution, don’t just enforce laws AAEC 9/2 How do we achieve a cleaner, healthier environment and cheap electricity? Find the point of optimality. Instead of enforcing laws, the markets need a financial incentive Pollution permits SO2 permits entitles the owner of a coal burning utility plant to emit 1 ton of the SO2 in to the atmosphere yearly per permit. At the end of the year, they must have bought as many SO2 permits as the amount of SO2 they let into the atmosphere, and if they haven’t, they’re fined $2000 per ton over, plus that many tons are deducted from their limit the next year. The permits are marketable and transferable throughout the year. They can also be saved for the next year. Anyone can buy the permits (utility plants, environmental groups…) So if one place has 4 plants, what’s the fairest way to allocate 40,000 tons of SO2 permits? o Sell them to whoever can afford them, they should compete. Why doesn’t one firm buy all the permits and build a monopoly? o Because the others would upgrade to cleaner plants The cost of optimal technology sets an upper limit on all the permits, so one would buy all of them and sell them at higher prices, it wouldn’t work Every 5 years the MSB gets together and sets limits for the next 5 years, so if there was too much pollution how do they solve it? o Allow less permits Most powerful way to save the environment is to put a price on it.
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