Question

Many lakes and rivers in the state of Michigan are polluted due to oil production. The table below shows possible combinations of oil production and reduction of pollution, depending on the regulation chosen.

Bundle Name	Oil Production	Pollution Cleaned
A	800	10%
B	500	30%
C	600	40%
D	400	40%
E	100	90%

Answer the following questions. It may help to draw a production possibility frontier.

Which choices display productive efficiency? How do you know? (1 point)

Which choices display allocative efficiency? How do you know? (1 point)

In the choice between B and C, can you say which is better and why? (1 point)

In the choice between B and E, can you say which is better and why? (1 point)

If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice C or D? Why? (2 points)

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Answer 1

1) Choices B and C are productive efficency as there if we see the overall highest production of oil is 800 where cleaned pollution is 10%, but cases of B & C, there production is 500 & 600 in corelation cleaned pollution is also higher 30% & 40%.

3) In choices between B & C, i can say choice C is better were prodcution is high and cleaned pollution is also good.

4) In choices between B & E, if we look after cleaned pollution then E is better, but if we have to see production also then choice B is fine.