1. ACID RAIN
Kevin Lee & Hyun Woo Cho
IB Economics HL Block H
Ms. Jordy

2. BACKGROUND INFORMATION – WHAT IS ACID
RAIN?
a rain or other precipitation form of air pollution in

which is acidic
Airborne particles form a key

component of urban smog and are
now recognized as a significant health
hazard
Chemicals destroy the environment


3. 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

nitrogen oxides produced
 oxides react with water and other
chemicals in the air
 create acids such as sulfuric acid,
nitric acid, and other acids.

4. BACKGROUND INFORMATION – PLACES
AFFECTED BY SEVERE ACID RAIN

5. 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

6. POSSIBLE CAUSES OF MARKET FAILURE
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

7. PROPOSED REMEDY
Acid Rain Program (ARP) formed in 1995

Initiative taken by the US Environmental Protection

Agency (US EPA)
Imposing high acid rain fine


8. 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

11. DOES IT INTERNALIZE THE EXTERNALITY?
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 environment


12. ECONOMIC MODEL
P
(S1) MSC
(S) MPC
Pso
Pp
(D) MPB
(D1) MSB
Qp Q
Qso
Less resources

13. BIBLIOGRAPHY
http://http://www.eponline.com/articles/54601/

 http://www.geocities.com/capecanaveral/hall/9111/D
OC.HTML?200918
 www.maine.gov/dep/air/acidrain/
 http://science.howstuffworks.com/acid-rain3.htm