Acceptable logotypeECO 3620. Environmental Economics

Instructor: John Whitehead
e-mail: whiteheadjc@appstate.edu

Exam #3 Study Guide

Key Terms:

  1. negative externality
  2. free market environmentalism
  3. Coase theorem
  4. moral suasion
  5. command and control regulation (i.e., standards)
  6. technological standards
  7. uniform standards
  8. equimarginal principle
  9. emissions taxes
  10. abatement subsidies
  11. marketable emissions permits
  12. double dividend
  13. acid rain program
  14. dynamic efficiency
  15. results from the regulation simulation
  1. environmental macro
  2. green GDP
  3. GPI and GDP
  4. regulation and inflation
  5. regulation and GDP
  6. regulation and unemployment rate
  7. regulation and labor productivity
  8. sustainability
  9. climate change
  10. results from the climate change game
  11. "a better climate change agreement"
  12. GHG emissions and GDP

Short Answer Questions (50 points):

1. Draw the MD-MAC diagram and answer the following questions.

  1. Where is the efficient emissions level?
  2. Where should an emissions tax be set to obtain the efficient emissions level?
  3. Under this tax in the long run, will business firms provide more, less or the same emissions as your answer to #1?

2. Draw the MD-MAC diagram and answer the following questions.

  1. Where is the efficient emissions level?
  2. Where should an abatement subsidy be set to obtain the efficient emissions level?
  3. Under this subsidy in the long run, will business firms provide more, less or the same emissions as your answer to #1?

3. Draw a graph that illustrates two polluters with different marginal abatement costs.

  1. Illustrate the inefficiency that arises if both pollutes are given the same number of emissions permits.
  2. Describe what will happen if the polluters are allowed to trade their permits (i.e., who sells to who)?
  3. Illustrate the resulting distribution of permits (i.e., the equimarginal principle).

4. Draw a demand-supply diagram.

  1. Illustrate the effects of environmental regulation in this market.
  2. If all markets are regulated in this way, describe the effects of environmental regulation on economic growth, inflation and the unemployment rate.