1. Skim through

a. What does LifeStraw produce and sell?

b. What does LifeStraw provide for families in Kenya?

c. What does this have to do with carbon dioxide reduction and how does Vestergaard benefit from this?

d. What positive externality is created by this in Kenya and globally? Address each separately, Kenya and the world.

e. What is the fatal flaw of Vestergaard's role in the carbon trading market according to the Stanford research led by Amy Pickering?

f. According to this research, what percentage of program participants continued to use the water filters 2 to 3 years after receiving them?

g. How does this usage percentage compare to what Vestergaard says? Why would Vestergaard overestimate usage?

2. Electric vehicles (EVs) are generally considered to be clean technology. Look at https://pluginamerica.org/why-go-plug-in/state-federal-incentives/. FYI, according to greentechmedia.com, the "difference between a BEV and a PHEV is that the former has a driving range limited by the energy storage capacity of its battery, while the latter is equipped with a liquid fuel tank and an internal combustion engine, and therefore has virtually unlimited driving range."

a. What federal incentive is provided to encourage purchase of EVs? Use your own words, don't cut and paste from the website.

b. Choose a state of interest to you. What incentives are provided for purchase of electric vehicles in this state and what state is it?

c. Do subsidies such as these shift the supply of EVs or demand for EVs in the short run? What impact does this have on market equilibrium price and quantity of EVs sold? (Note: This is another back-to-basics question.)

d. EV sales in the US jumped 37% in 2016 (https://www.forbes.com/sites/rrapier/2017/02/05/u-s-electric-vehicle-sales-soared-in-2016/#3d70949c217f) and overall US vehicle sales set a new record of 17.55 million. What percent of total vehicle sales in the US were electric?

3. Governor Blabla has decided that, rather than build a new nuclear power plant to service power needs, the state should save an equivalent amount of energy. As one component of an efficiency plan, he has turned to you, his top aide, to design a policy to encourage adoption of compact fluorescent (CF) lightbulbs. Recall from Chapter 6 that although CFs save a tremendous amount of money (and energy) over their lifetime, they are quite expensive initially ($20 or so per bulb in 1993). In addition, they give off a slightly bluer light than normal bulbs, are generally somewhat larger and cannot be used with dimmer switches. You've thought up three possibilities:

Utility Rebates. Have publicly-regulated electric companies provide "rebates" of 75% of the purchase price to consumers who install CF bulbs. Allow utilities to cover the cost of the program through higher electricity rates.

Government Procurement Contract. Have the state government agree to purchase, using general tax revenues, a large quantity of bulbs from an in-state supplier (at competitive rates). The bulbs would be used to retrofit government buildings.

R&D Subsidies. Provide funds from general tax revenues to in-state firms to develop CF bulbs that can be sold at lower cost and/or are more comparable to standard incandescent bulbs. Continued receipt of such subsidies should be conditional on cost-reductions or performance enhancements.

1. For each of the three plans, answer the following questions:

a. How expensive will the policy be for the state (i.e taxpayers)?

b. What obstacles to successful implementation might arise?

c. If you had to pick one policy to push for, which would it be? Why?

4. Biological pest control has high fixed costs associated with machinery and predator rearing. Farmers experience substantial "learning by doing" and they depend on "network externalities", information gained from fellow farmers and university extension agents. Additionally, if neighboring farmers are spraying conventional pesticides, the pesticides will also kill off natural predators raised for biological control. Suppose we can have an average cost function per ton of output for an individual farmer using biological control methods as follows:

AC_b = $200 - 0.1y_b - 0.01X_b + 0.01X_c

Where X_b is tons of biological farm production in the region (inclusive of the farmer for whom AC is being calculated), X_c is tons of chemical farm production in the region, and y_b is tons of agricultural output for the biological farmer.

a. Complete the table (attached) showing how cost of producing 100 units of output varies according to the amount of chemical and biological farmers in the area:

b. Why does AC fall as X_b rises but rise as X_c rises? Answer conceptually, not mathematically. This is not a trick question; it is just to be sure you understand the context.

c. Suppose that chemical intensive farmers have constant average costs equal to $185 per ton and that prices are driven down to the cost of the lowest cost producer. A long run equilibrium is one in which there is no incentive for entry or exit by any more farmers of either type (biological or chemical). Keep in mind most agricultural markets are perfectly competitive, so if one farmer has higher costs than others, it will be driven out of business. With this in mind, which of the following are stable long run equilibria?

• Ten biological farmers each producing 100 tons and no chemical farmers
• Ten biological farmers each producing 100 tons and five chemical farmers each producing 100 tons
• One biological farmer producing 100 tons and ten chemical farmers each producing 100 tons
• No biological farmers and ten chemical farmers each producing 100 tons

d.   In the late 1960s, after cotton pests developed pesticide resistance, cotton growers in Texas successfully made a shift to biological pest control methods.  Government infrastructure support for predator rearing and farmer education was critical in this effort. In Mexico, with no similar support, the cotton industry collapsed. How could this phenomenon be explained using the cost function above?