ECON 311 Final Exam Fall 2005

Transcription

1 ECON 311: Economics of the Environment Name: Spring 2005 Bellas Final Exam You have three hours and thirty minutes to complete this exam. Answer all questions, explain your answers, label axes and curves on graphs and do your own work. Fifty points total, points per part indicated in parentheses. 1. As promised, here s the graphing question for the final exam. In a graph with abatement on the horizontal axis, show the cost savings from a technological innovation that lowers marginal abatement cost under each of the following policy regimes. A. Fixed standards (3) B. Changing emission fees (3) C. Fixed abatement subsidies (3) Page 1 of 1

2 2. For each of the following policy regimes, are the incentives to adopt a technological innovation that lowers marginal abatement cost greater than or less than the socially optimal incentives? Explain your answers. A. A changing abatement standard (3) B. A changing abatement subsidy (3) Page 2 of 2

3 3. In class one evening, someone pestered me about what might happen to the value of a lake as it got cleaner and cleaner. I dropped it then, but now it s payback time. Below, you ll find a total value graph that represents a lake getting cleaner and cleaner to the point that it becomes too clean to support fish and fishing. Please draw the associated marginal value curve. (3) Page 3 of 3

4 4. A lot of pollution regulation in the U.S. began by granting states the right or responsibility to determine appropriate levels for ambient quality and to devise plans to meet these levels. Give two different problems with assigning this responsibility to the states. (2) 5. Economists generally prefer market-based approaches to pollution regulation. However, even economists are forced to admit that under some conditions, technology-based regulations might be preferable. When might technology-based approaches to pollution regulation be preferable such market-based approaches as an emissions fees or permits? (3) Page 4 of 4

5 6. Now consider a diagram of the level of cleanliness of a lake. For the indicated marginal cost (MC) and marginal benefit (MB) curves, please answer the following. A. Explain why point B is never optimal. (3) B. Looking at the above graph, which point would you say is optimal? Explain. (3) Page 5 of 5

6 7. Three factories are each emitting eight tons of waste into a lake. The factories have the following marginal cost of abatement schedules: Tons Abated MC A MC B MC C 1 $1 $2 $3 2 $4 $3 $5 3 $7 $4 $8 4 $10 $5 $12 5 $13 $6 $17 6 $16 $7 $23 7 $19 $8 $30 8 $22 $9 $38 A. If ten permits are sold at auction, who will buy them? (3) B. What might be the price paid for the last of the ten permits sold? Explain. (3) C. What is the cost savings from reducing pollution by nine units through a permit system versus having each firm reduce its pollution by three units? (3) Page 6 of 6

7 8. Paul Lainhart, of Lennar Homes, spoke to the class about how his firm complies with federal regulations protecting storm drains from soil runoff. In discussing this, he mentioned that although total soil runoff from agriculture is much greater than that from construction, the federal government has chosen to target construction sites for regulations regarding prevention of soil runoff. Why might it be more efficient for the government to regulate construction sites? (3) 9. Emissions of nitrogen oxides (NO x ) come mostly from automobiles, also known as mobile sources. Despite this fact, there are a lot of government programs focus on stationary sources of these emissions rather than on mobile sources. Explain why it might make more sense to focus on stationary sources when most emissions come from mobile sources. (3) Page 7 of 7

8 10. On the midterm, there was a question about the efficient level of provision of a public good. Most people correctly answered that as the size of a city increases, the efficient level of provision of a public good increases as well, other things held constant. The question is, is this because the marginal cost of providing the public good falls or because the marginal value of the public good rises? Explain. (3) 11. Here s a question from a recent homework assignment with the numbers changed ever so slightly. The manufacture of one unit of a toxic substance costs $60. Proper disposal of a unit of this substance costs $200, but the substance may be disposed of improperly, but in a way that the disposer cannot be identified, at a cost of $30 per unit. What is the range of possible values for a subsidy for proper disposal that will encourage proper disposal without encouraging the production of the substance simply for collection of the disposal subsidy? (3) Page 8 of 8