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ACID RAINKevin Lee & Hyun Woo Cho
IB Economics HL Block H
Ms. Jordy
BACKGROUND INFORMATION – WHAT IS ACID RAIN?
a rain or other precipitation form of air pollu-tion in which is acidic
Airborne particles form a key component of urban smog and are now recognized as a signifi-cant health hazard
Chemicals destroy the environ-ment
BACKGROUND INFORMATION – CAUSE
emission of sulfur dioxides and nitrogen oxides from the burning of fossil fuels and other kinds of manufacturing numerous sulfur dioxides and ni-
trogen oxides produced oxides react with water and
other chemicals in the air create acids such as sulfuric
acid, nitric acid, and other acids.
BACKGROUND INFORMATION – PLACES AFFECTED BY SEVERE ACID RAIN
MARKET FAILURE
Definition – when a market fails to produce efficient outcomes, and in particular does not achieve allocative efficiency
individual’s pursuit of personal benefit a reason for government intervention in free
markets
POSSIBLE CAUSES OF MARKET FAIL-URE
Spillover effects Lack of competition Lack of knowledge Markets may take a long time to adjust to
any disequilibrium
Spillover effects – the main reason for the market failure from acid rain
PROPOSED REMEDY
Acid Rain Program (ARP) formed in 1995 Initiative taken by the US Environmental Protec-
tion Agency (US EPA)
Imposing high acid rain fine
HOW DOES THIS REMEDY WORK?
Acid Rain Program (ARP) since 1995 Reduce annual emissions of sulfur dioxides and
nitrogen oxides For Sulfur dioxides
Cap and trade program Allowance
For Nitrogen oxides Rate-based regulatory system
Example: East Kentucky Power Cooperative Requires company to reduce approximately 400
tons of harmful toxin emissions every year
DOES IT INTERNALIZE THE EXTERNAL-ITY?
Yes, it does internalize the externality
Used to be low price, high quantity
After internalizing higher price, lower quantity of the burning of
fossil fuels and other forms of manufacturing lessening the impact of acid rain on the envi-
ronment
ECONOMIC MODEL(S1) MSC
(S) MPC
(D) MPB
(D1) MSB
Q
P
QpQso
Pp
Pso
Less resources
BIBLIOGRAPHY
http://http://www.eponline.com/articles/54601/
http://www.geocities.com/capecanaveral/hall/9111/DOC.HTML?200918
www.maine.gov/dep/air/acidrain/ http://science.howstuffworks.com/acid-rain3.
htm