Part 1
1. Explain the fundamentals of the Coase Theorem and where this theory doesn't work well:
2. Voters have little incentive to pick the best candidate to maximize their welfare. Explain why people don't have enough motivations to do so and what's the result of it?
3. "A company doesn't make any decisions; the employees inside it make decisions." What theory does the sentence mention above? Explain this theory in a few sentences.
4. Three firms have marginal costs of pollution abatement as described below. Without regulation, each firm would pollute 3 units. Under command and control regulation each firm gets to pollute 1 unit. But the new Santorum administration decides that these permits should be tradable among these 3 firms. Explain whether each firm buys or sells permits, and show by how much each firm's costs go up or down. What is the total effect of allowing trading across all firms on the cost of pollution abatement?
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Amount of pollution
|
|
Firm numbers
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0
|
1
|
2
|
|
1
|
58
|
60
|
63
|
|
2
|
60
|
21
|
58
|
|
3
|
200
|
78
|
16
|
Part 2
5. The following graph is a supply and demand diagram.
A. Point out the producer surplus, the consumer surplus, the hidden cost and the area that wealth from trade that is lost to society.
B. Does rent control actually helps the consumers to lower the price?
6. Demand is given by : Q=50-1/2P
Supply is given by: Q=1/2P-5/2
a. What is the equilibrium?
b. Calculate the consumer surplus and the producer surplus?
7. In most cities, if you wish to operate a taxi cab, you need a "barrier to entry", often referred to as a "medallion". Which type of barrier to entry is it for a taxi in New York? What problems it has for this kind of entry. Explain your answer.
8. Disney land discovers that they have two groups of customers with two different demand curves. Locals have demand P= 20-0.1Q and foreigners have demand P=100-0.2Q. What is the profit maximizing set of prices? (The marginal cost of visitors is zero.)
Part 3
1. Since carbon emissions from fossil-fuel combustion may be causing undesirable changes in the earth's atmosphere, we should adopt the "precautionary principle." What do you think about precautionary? What do you think about this conclusion?
2. List three externalities that arise from consuming oil and three ways to replace crude oil as a transport fuel.
3. Explain what "renewable portfolio standards" are and how they work.
4. Do you think energy independence for the United States is a good or a bad idea?