Environmental Economics Exam - 1139 Words

Take-Home Exam Exercise 1 (a) If the emissions in the area are left unregulated then the two factories will emit as much as they can, which means there will be zero abatement (MAC=0). So we have: Factory A: MACA=0 4000-EA=0 EA=4000 Factory B: MACB=0 4000-4EB=0 EB=1000 For the socially optimal level of emissions we have: MACA=4000-EA EA=4000-MACA MACB=4000-4EB EB=1000-0,25MACB By adding the above by parts we get: E=5000-1,25MAC MAC=4000-0,8E The socially optimal level of emissions is where MAC equals MD, therefore: MAC=MD 4000-0,8E*=1,7E* 4000=2,5E* E*=1600 (b) First, we must find the excess demand for permits for each factory. In order to do this, we must assume 2 prices for each factory. Factory A: If†¦show more content†¦So, we have: MAC=MD 360- 65 E = 0,3E* 360 = 310 E* + 1210 E* E*= 1015Ãâ€"360 E*=240 units. (b) In order for the two tanneries to be cost-efficient, two conditions need to be in force: EA+EB=E MACA=MACB So, we have: EA+EB=240 EA= 240-EB MACA=MACB 360-2EA=360-3EB 360-2(240- EB) =360- 3EB 5EB=480 EB=96 And EA= 240-EB EA= 240-96 EA=144 So, Firm A should emit EA=144 units and Firm B EB=96. For EA=144 we have: MACA=360-2(144) =360-288=72 So: TACA=180-144Ãâ€"722=25922=1296 For EB=96 we have: MACB=360-3(96) =360-288=72 So: TACB=120-96Ãâ€"722=17282=864 (c) Since, the government sets an emission tax, in order to find the units that each firm will be willing to emit under this tax we set MAC=tax, because each tannery will choose to emit until its MAC becomes equal to the tax. So, we have: Tannery A will emit: MACA=66 360- 2EA=66 2EA=294 EA=147 units Tannery B will emit: MACB=66 360 -3EB=66 3EB=294 EB=98 units Under this policy of taxing we have: For tannery A the cost of compliance is: TCA=TACA+(tÃâ€"EA) TACA=12Ãâ€"180-14766$=1089$ So:Show MoreRelatedNumerical Exam Questions for Environmental Economics2137 Words   |  9 PagesNumerical exam questions for Environmental Economics Spring 2006 Krister Hjalte Question 2. (29/3 1998) The inverse demand function for a non-renewable resource is Pt = a- bRt, where Pt is the market price and Rt the extraction in period t. The total gross benefit from extracting this resource can be written as an integral The extraction cost Ct= cRt, where c is a constant. Total available amount of the resource is denoted by S. 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