Environmental Economics (EC 434:534)
Midterm Exam — Practice problems and answer key
环境经济学exam代考 Sketch a graph that roughly corresponds to the market for emissions described above; it does not need to be drawn to scale.
1 Multiple choice questions (3 points each) 环境经济学exam代考
Please circle the correct answer for each question. If you make a mistake or wish to change your answer, please unambiguously cross out the incorrect choice and circle your new answer.
1. An efficient property rights structure is characterised by
(a) absence of any form of market failure.
(b) competitiveness, full information and completeness.
(c) a situation in which rights are only controlled by private individuals.
(d) exclusivity, transferability and enforceability.
(e) All of the above.
2. The optimal level of pollution
(a) equates total abatement costs and total damage costs.
(b) minimizes the sum of abatement costs and damage costs.
(c) cannot be achieved without some form of government intervention.
(d) is zero.
(e) None of the above.
3. If there are negative externalities from production, the competitive market will generate too much of the polluting good.
4. Total willingness to pay (WTP) is defined as the area underneath the demand curve less the price paid. 环境经济学exam代考
5. A tax on emissions remains a cost-effective solution to control pollution, even if the tax is set too high and results in too much abatement relative to the social optimum.
2 Part 2: Longer questions (6 points each)
On efficiency grounds, economists advocate that we should welcome proposed policies which pass the “Cost-Benefit Test” — namely those for which the gains to the winners exceed the losses to the losers. But most such policies will definitely have some “losers”. How can a policy with “losers” still be considered good for society? Explain.
2.2 Stated preference (from Winter 2018 Midterm I)
In stated preference research, choice experiments (also known as conjoint analyses) are sometimes used to measure environmental benefits. What features distinguish choice experiments from contingent valuation methods, and why are these differences important? Explain.
3 Analysis questions 环境经济学exam代考
3.1 Public goods (from Winter 2018 Midterm I)
A small community considers setting aside land for a wildlife preserve. The community consists of 100 identical people (i = 1, ..., 100), each of whom values the preserve according to the same private marginal benefit function: where A is the number of acres preserved. The supply of preservation land is perfectly elastic, so that each acre can be purchased at a constant rate of $1,000.
3.1.1 What is the optimal size of the wildlife preserve? (5 points)
3.1.2 What is the consumer surplus resulting from this optimal allocation? (5 points)
3.1.3 If the land is funded by donations, what is the most that any individual community member would contribute? (5 points)
3.1.4 Now, suppose instead that a tax is introduced to fund the preserve. What per-capita tax rate would provide the necessary funding for the optimally-sized preserve? Hint: Start by working
out the total cost of the optimal preserve. (5 points)
3.2 Externalities (from Winter 2018 Midterm I — partial) 环境经济学exam代考
An unregulated coal power station emits local air pollution in the form of particulate matter (PM 2.5). Each emissions-equivalent unit of production currently costs the firm . The marginal benefit of emissions to the firm is . The PM 2.5 pollution generates asthma problems for nearby children, yielding marginal health damages of
3.2.1 What level of emissions does the firm select in an unregulated market equilibrium, and what is the resulting price? (5 points)
3.2.2 What is the optimal level of emissions from a social standpoint, and what is the resulting price? (5 points)
3.2.3 Sketch a graph that roughly corresponds to the market for emissions described above; it does not need to be drawn to scale. Label the marginal benefit (MB), private marginal cost (PMC),
marginal external cost (MEC), and social marginal cost (SMC) curves. Highlight the region of deadweight loss. (5 points)
3.2.4 Calculate the deadweight loss that arises due to the negative air pollution externality. (5 points)
3.3 Pigouvian policy (Homework)
Consider two polluting firms, X and Y, with respective marginal abatement cost functions of
Suppose that government then decides that society requires a (total) abatement level of A = 10 units. They can achieve this either by imposing a uniform abatement standard (i.e. 5 units per firm) or, as their chief economist claims, by setting a Pigouvian tax of τ = $5 per unit
3.3.1 Sketch the problem in the fashion of the “bathtub” diagram that we practiced in class. In other words, plot the required abatement goal on the horizontal axis, with the two firms’ MAC curves
extending from different y-axes.
3.3.2 Assume the government decides to follow their chief economist’s advice and impose the $5 tax. What are the relative abatement shares of X and Y? And what are their respective total
3.3.3 How much does each firm save compared to the policy option of imposing a uniform abatement standard? 环境经济学exam代考