Environmental Economics Homework 2
Q1. Read this blog post: http://www.nytimes.com/2010/06/06/business/06view.html
(if you want to see a response, see this post: http://economix.blogs.nytimes.com/tag/externalities/)
Based on the article, list three negative externalities associated with driving:
Now consider the graph below. If the average vehicle gets 25 miles per gallon, then according to the data reported in the article, what is the value of BE in the graph below?
Q2. Draws on the "HWK2 Reading 2 AAE 343 Spring 2014.pdf". It is also available here:
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/04/the-coase-theorem-iswidely-cited-in-economics-ronald-coase-hated-it/
In the essay, Coase makes the argument that even when transactions costs are high, it may not be best for government to get involved to correct the inefficiency -that sometimes the inefficiency should stand. Provide the quote where he makes this argument.
Q3. Consider the graph of a fishing company and paper mill. The graph is below. Assume that transactions costs are too high for Coase bargaining to take place.
a. If the fishing company has the right to the river, what is the abatement cost to the mill owner in this case? Indicate the cost using the lettering on the graph (such as, Cost = XYZ):
b. If the mill owner has the right to the river, what is the pollution damage to the fishing company in this case? State the cost using the lettering on the graph:
c. In this case where transactions costs are too high for Coase bargaining, which of the two users of the river should be assigned rights to the river if the objective is to maximize social net benefit?
d. Now suppose that transactions costs become zero. In light of your answer to (c) -that is, given the assignment of property rights indicated in (c) -what would be the social net gain due to Coase Barganing? Indicate the gain using lettering on the graph:
Q4. Draw a graph involving an MPD curve and an MAC curve where the pollution is so harmful that NO pollution should be allowed. Be sure to properly label the axes!
Q5. Questions (a) and (b) pertain to the figure at the end of this question.
a. Consider the case of electricity production from burning coal, which produces the pollutant sulfur dioxide (SO2). On the graph below, which of the MAC curves (MAC1 or MAC2) applies AFTER a decrease in coal prices?
b. What is the economically efficient amount of emissions after the price change?
