Question

Consider the following diagram. Suppose MDU represents marginal damages in Toronto and MDR represents marginal damages in Thunder Bay caused by emissions of carbon monoxide.  

MDu 10Eu 600 500 MD= 5Eg 400 300 200 600-SE 100 100 80 40 60 120 Eu ER Emissions of carbon monoxide (CO) (kilog rams per month)

Suppose the regulator imposes a uniform standard of 50 kg of emissions in each city. In the above diagram, identify the areas representing the net social loss from under-control in the urban area and the net social loss from over-control in the rural area. Compute the dollar values of these areas.

Answer 1

It is given that the uniform standard of emission in each city, that is, 50 kg. Then the loss to society is shown in the diagram below-

Dom undrcentd MD FOL. MD,S 400 2ouar bes hom Dvencntial 350 250 200 MAC 00-5E 100 120 S00 Est Emssios of carbon de CIO kalcg r per mot mifanm Sendand NOt 0ua 20es From ondur control haded ansa of triongia BC Net Souial 20 Fem gvee constol hrddarsa of triongle 6 DE Dauau Valne Net Soual loK FHom Aua of thngle BDE over contrsl *D60-501x (35o-i50]=IXIO XI0O 2 Net Soulal os Pom ovrCornol 500 Net Soual lors Pom Uhdet condtrel = Aua of tbngle ABC xloxI50 T=[ass-00s] xCoh-05] xT= $750 Net Soual loas Fom imdur Centrol