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