June 6th, 2005


I spilled soup on the floor

I spilled soup on my floor. I'm not really ticked because my carpet needs cleaning now. It's needed a good steaming for a while. This doesn't make it any worse really.

I'm ticked because this is damn good soup and I'd have like to eat that extra spoonful.

Eco 200: optimal pollution level

(group) What is the optimal level of pollution from the standpoint of society? Please answer this question with words and a graph.

From a classmate:

The optimal level of pollution, in terms of the economic way of thinking, is that level at which the marginal benefit is equivalent to the marginal cost. In terms of a graphical illustration, the optimal level of pollution would the point where a line or curve depicting the marginal cost of reducing pollution (sloping from southwest to northeast; Cost on Y axis and reduction of pollution on X axis) intersects a line or curve depicting the marginal benefit of clean air (demand for clean air; sloping from northwest to southeast; Benefits of Clean Air on Y axis and percent reduction of pollution on X axis).

My response: At what point in time do you measure this?

One of my problems with using economic way of thinking on this is it's too short-sighted. We tend to think of the short term demand and compare it against the short term costs. The externality here is the cost we don't take into account, the fact that the costs to clean up pollution rise. The externality is that we think someone else (our children, or someone in the future) will pay for the clean-up, not us. If the curves were reflected what the public will know in the future, I'd say it's optimal. As it is, it merely reflects what people are willing to pay for right now.


Eco 200: movie theaters

(individual) Why do people sometimes disturb others by talking during movies? Do the talkers and those whom they disturb agree about the rights one acquires when purchasing a movie ticket? How could the owners of movie theaters resolve this conflict? Why don't they do so?

Talkers do so because talking is free. There is little cost for doing so. It's much the same as the example of free camping spots at national parks used earlier in the class. Because there is no monetary rationing of camping spots, people use other rationing, like whoever gets there first. Because there is no rationing of the "talking during movies enjoyment" so they will use as much of that resource as they want. Owners of movie theaters could resolve it in a number of ways. MST3K showings (where one can talk as much as one likes). Through staffing the theaters with ushers who escort talkers out. They don't because the marginal cost exceeds the marginal revenue.


Eco 200: littering

(individual) The sign at the beach says, $25 fine for littering. A beach user nonetheless tosses his used soda bottles on the sand rather than walk to the distant trash barrel. He knows that the beach patroll has seen him and will issue a citation, but he is very wealthy and so places a very low marginal value on money and a very high marginal value on time. Would you call him a litterer if he is willing to pay the fine? Or has he purchased the right to use the sand as a waste receptacle?

It's not either/or. It's both. He's purchased the right to litter, once. A murderer who's paid his debt to society with a prison term doesn't become a non-murderer because he paid the debt.


Eco 200: trading pollution credits

(individual) Suppose that government agencies decide exactly how much of each kind of industrial pollutant they will allow within a given airshed and sell the rights to discharge these qantities of pollutants to the highest bidder.

  1. Which firms would offer the highest bids?

    Those with the highest costs to reduce their pollutant output.

  2. How could citizens interested in cleaner air than the environmental agency had ordered use this system to obtain what they want?

    They could purchase some of the rights to discharge pollutants, then not use them. However, this method does not always work. In the 1990s, environmentalists intent on reducing damage to National Forests purchased grazing rights intent on not using them. They were forced to give up those rights after paying for them, because they didn't intend to use them.


Eco 200: automobile emissions

(individual) Assume that the graph in Figure 13-1 shows how much much it costs per year per car to reduce undesirable automobile emissions by various percentages through mandatory exhaust-control devices.

  1. Why does the curve rise slowly at first and increase more rapidly as emission levels decline? Is this a peculiar characteristic of automobile exhaust-control systems, or is it a more general relationship?

    Because the cost to reduce emissions increases exponentially. Generally the cost to reduce anything will following a similar curve, though the exact rate is different every time. For instance, the cost to reduce a software development schedule by 50% is going to double. But to reduce it to nothing will cost you infinite dollars.

  2. Does this curve tell us how much emissions ought to be reduced? Does it provide any guidance at all to those who make public policy in this area?

    It does not say how much they ought to be reduced, though it does give some guidance that the cost will eventually outstrip the benefits.

  3. If you think of this curve as the marginal cost of supplying cleaner air, what kind of data would you want in order to construct the demand for cleaner air? What would be the significance of the intersection between these two curves?

    The same data for any demand curve. How much a person would be willing to pay for a reduction in emissions? Where it intersects is where you know that you have support for paying for reduction. And where you are likely to see the actual reduction (as well as the actual money paid for the reduction).

  4. Suppose you want to find out how much people in your area value cleaner air. So you commission a survey in which people are asked how much they would be willing to pay in order to obtain various levels of reduction in the amount of noxious automobile emissions in their community. Can you generally count on them to tell the truth? Remember that they won't be held to their valuation—that is, they won't actually be required to pay what they say they would be willing to pay. What are the major sources of bias in such a survey procedure?

    It doesn't ask them to economize their scarce resource, money. Asking someone how much they'd pay for a concert doesn't take into account the fact that they can only afford one concert per year. They don't have to choose. And without choosing, it's only somewhat of a preference. It will over-estimate the amount people will be willing to pay.

  5. Suppose that your survey is done for the government and that the people who you ask know they will actually be required to pay an annual tax equal to the amount they say they are willing to pay for whatever level of reductions is finally decided on and enforced. What sort of bias will this introduce into your community demand for cleaner air?

    It's likely to under-estimate in this case. Even though they may be willing to pay X for Y, they may not be willing to ay X times 2 for Y times 2. So rather than get suckered by everyone else being willing to pay for more reduction than they are willing, they will underbid by a percentage they think everyone else will bid over their preferred amount. Since they think everyone else really wants a lot of clean air (see results of previous survey), they'll underbid by a lot, expecting it to be raised up when others want more.

  6. No cost is too great to pay to reduce the smog level. Do you think that people who make such statements expect to be among those who actually pay the costs of reducing the smog level?

    I'm sure they do. I expect they don't think the cost is really infinite. My guess is they really think the government has a secret technology that eats all smog and that the auto industry is secretly suppressing it. So the application of $52,178 for the proper industrial espionage will cure smog. So they think the cost to them really will be small.