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Krugman and Wells Microeconomics Essay

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a. Capturing and transforming methane gas behaves like a Pigouvian tax by creating less pollution.   A Pigouvian tax will tax the methane gas that is emitted into the air which will cause the farmers to want to use less methane gas, so they don’t have to pay as much tax.   Capturing the methane gas and transforming it reduces the amount of gas released into the atmosphere; the same results would occur with the Pigouvian tax.

b. With some farmers being able to transform methane gas into electricity at a lower rate than other farmers this gives incentive for these farmers to produce electricity.   The farmers transforming methane into electricity will save money on their utility bill and they will be able to make a profit off of the electricity they sell.   The farmers that need to purchase the methane gas may be able to purchase the gas from other farmers at a lower rate than from other companies.   This system will lead to an efficient allocation of emissions reduction among the farmers.


a. At the current level of consumption the optimal retail price of a pack of cigarettes in each state is the CDC’s estimate of smoking cost in 2006.   The current price in each state is lower than their optimal price.   The current level of consumption is too high due to the fact that smokers are paying less than the optimal price of smoking.

b. No. The current taxes are not set to optimal level, because the price of cigarettes with tax is less than the social cost of smoking.

c. If the CDC’s estimate for the cost of smoking does not change with an increase in the price of cigarettes, ten the correct size of an additional Pigouvian tax should equal the difference between the social cost and the individual cost.
California-- 15.10 - 4.40= $10.70.   New York-- 21.91 – 5.82= $16.09.   Florida—10.14 – 3.80= $6.34. Texas—9.94 – 4.76= $5.18.   Ohio—9.19 – 4.60= $4.59.

a. The transaction cost is high due to the time and cost of taking two days to...

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"Krugman and Wells Microeconomics". Anti Essays. 9 Dec. 2018


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Krugman and Wells Microeconomics. Anti Essays. Retrieved December 9, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Krugman-And-Wells-Microeconomics-356801.html