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Take-Home Exam [10-27-08]

Take-Home Exam [10-27-08] - Cuong Huynh 1027/08 ECON 4626...

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Cuong Huynh 1027/08 ECON 4626 Take-Home Exam I. Allocative Efficiency a. Technology Standards – Setting the standards: administrative/legislative process. Unlikely to be allocatively efficient. b. Emissions/ Use Standards – estimate A e for the industry or area, and divide up total emissions/abatement among sources. c. Taxes – allocative efficiency & setting the tax must do a benefit-cost analysis to estimate overall A e , and find the tax rate that achieves A e . d. Subsidies – Opportunity cost, see graph. e. Permits – i. Set Up & Allocate Externalities 1. Measure MSB, MSC and set target level of use (or abatement). 2. Issue permits to meet target (A e ). ii. Market for Permits iii. Initial Rights 1. Equal distribution among existing sources or firms 2. Distribute according to initial use 3. Sell or auction permits => Government get some $$$ II. Technical (Cost) Efficiency a. Technology Standards – technology efficiency firm cannot choose how to curb use of the resource and is unlikely that every firm has the lowest MAC.
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