1. Consider the market for bee hives in” rel=”nofollow”>in a rural area a. Why might bee hives exhibit positive externalities in” rel=”nofollow”>in a rural area (hin” rel=”nofollow”>int: thin” rel=”nofollow”>ink of bee’s primary ecological role)? b. Draw a graph for the
market for beehives, labelin” rel=”nofollow”>ing the demand curve, the social value curve, and supply curve c. Indicate the market equilibrium quantity of beehives sold and the socially optimal quantity that should
be sold. Give an in” rel=”nofollow”>intuitive explanation for why these differ d. Describe one command and control policy and one in” rel=”nofollow”>incentive-based policy that could help correct this externality 2. We generally seem
to thin” rel=”nofollow”>ink that levels of many pollutants in” rel=”nofollow”>in society are too high a. If society wishes to reduce overall pollution by a certain” rel=”nofollow”>in amount, why is it efficient to have different amounts of reduction
comin” rel=”nofollow”>ing from different firms? b. Command-and-control policies often rely on uniform reductions in” rel=”nofollow”>in pollution across firms. Why might these approaches generally have a hard time targetin” rel=”nofollow”>ing the firms
that should be makin” rel=”nofollow”>ing the biggest reductions? c. How might in” rel=”nofollow”>incentive-based regulations such as a corrective tax or tradable permit system target firms that should undertake the biggest cost
reductions? 3. Read the NY Times article titled “A Conservative Climate Solution’: Republican Group Calls for Carbon Tax” from Feb 7th (available on Canvas under Files>Readin” rel=”nofollow”>ings) and answer the
followin” rel=”nofollow”>ing questions: a. Draw a graph of the regulated (i.e., taxed) market for fossil fuels, assumin” rel=”nofollow”>ing that the damages are constant and roughly equal to the $40 tax per ton suggested in” rel=”nofollow”>in the
article. Show the supply, demand, and social cost curves, and label both the optimal price P* and quantity q* as well as what the market price and quantity would have been in” rel=”nofollow”>in the absence of
regulation. b. Given what we have already discussed about the science of climate change, do you thin” rel=”nofollow”>ink that it is reasonable to assume that damages are constant as CO2 in” rel=”nofollow”>increases? Why or why not? c.
Which of the standard for decision makin” rel=”nofollow”>ing (efficiency, safety, sustain” rel=”nofollow”>inability) do the politicians in” rel=”nofollow”>in this article seem to be relyin” rel=”nofollow”>ing on the most? Make explicit reference to THREE pieces of
in” rel=”nofollow”>information contain” rel=”nofollow”>ined in” rel=”nofollow”>in the article, and defend your answer. d. What part of this article relates to the concept of a “double dividend”? How do the Republican lawmakers and their environmental
opponents disagree in” rel=”nofollow”>in this regard? 4. Imagin” rel=”nofollow”>ine that there are three in” rel=”nofollow”>industrial firms in” rel=”nofollow”>in Haze Valley:
Firm Initial Pollution Level Cost of Reducin” rel=”nofollow”>ing Pollution by 1 unit A 70 units $20 B 80 units $25 C 50 units $10 The government wants to reduce pollution to 120 units, so it gives each firm 40
tradable permits. a. Who sells permits and how many do they buy? Who buys permits and how many do they sell? Explain” rel=”nofollow”>in why the sellers and buyers are each willin” rel=”nofollow”>ing to do so. b. What is the total cost
of pollution reduction if we allow firms to trade as in” rel=”nofollow”>in part (a)? How much higher would the costs of pollution reduction be if the permits could not be traded?

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