Question

ECN510 Topic: Benefit-Cost Analysis Exercise Suppose a public program is proposed to lower the total pollution emissions from 15 to 12 tonnes per month. The total benefits of the program are the total damages reduced (TB-TDR). The total cost (TC) is measured by the total abatement cost (TAC). 10 12 14 16 Tonnes of pollution Suppose also MD = 2E and MAC = 60 - 4E, where E-emissions. 1. Find the total damages reduced. 2. Find the total cost of the program. 3. Find the net social benefits (=TB-TC) of the program. 4. What is the maximum net benefits of the program (Hint: from E=15 to E=10).

Answer 1

A public program is proposed to lower the total poldation emission from 15 to 12 tonnes per month. The total benefits of the program are the total damages reduced (TB=TOR). The total cost (TC) is measured by total abatement Cost (TAC). 60 MAC • 2 4 6 8 10 12 14 16 Tonnes Tanner of pollution of pollution LE 12 !2 712 It is given that , MD = 2E and MAC = 60+4E , where E-emission. We know that, TB=TDR = 1MD.de [as Attoral damage) _ Marginal damage and, TAG-TC = (MAC. de (1) Now, the total damaged reduced for the pollution & mission 15 to 12 is TOR = 1 mo. dE= $RE LE = ([?] 12 14h. 225=-81 . The total damage reduced is $81. tonnes of pollution 227 The total cost of the program, TC= 3 MAC.de = 560-4E) dE = [60E - 2E2] 2 = (720 - 288-900 +450)= -18 15 15 2 12 15 / Total abatement cost is reduce P.T.O »

237 - Total Benefit = 81 [as Total damage is redued $81 amounts - TB] The net social benefit- (TB-TC) = 81- (-18) = 18+81 299 . The net social benefit is $99 of the program. <hy The maximum TOR="BRE DE (1) = -125 (as the coquilibrium Et = 10] The maximum TC = 8 (60 - 4E) dE= (60E-262) = -50 15 . The maximum net social benefit = $125- (-50)} = 175 So, the maximum net social benefit is $175. Hope, it is cleared to you, my friend! 15