AEM451_Econ409_prelim_solutions_Exam

AEM451_Econ409_prelim_solutions_Exam - First Exam AEM...

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First Exam: March 13, 2007 AEM 451/Econ 409, Environmental Economics Please, write your name below and on the cover of the blue book, and initial the upper right-hand corner of each page of this exam sheet, read each question carefully before writing your answer, show all of your work — I award partial credit — use back of page or blue book if necessary (if you have to make any assumptions, please provide them), write legibly, concisely, and coherently, no looking at other exams or communication of any sort, you may use an instructor provided calculator if necessary, do not hesitate to ask questions regarding this exam, the exam period ends at 4:10 PM, and return exam questions and answers before leaving. NOTES: The exam period is 75 minutes, and there are 75 points. If you wish, you may use the problem point allocation as an indicator of how to allocate your time. We have approached some of these problems graphically in class or in our reading. Feel free to use graphs if they are helpful to you. Please read and sign to indicate agreement. If you are missing a page, let Dan know. “I have checked and there are, including this page, ___ 7___ sequentially numbered pages in this handout. Further, in signing below I agree to abide by the Cornell University Code of Academic Integrity with respect to this exam. I have/I have not ( circle one ) also provided answers in a blue book.” Name: ______________________________Signature:___________________________. Part I ________ (out of 40) Part II ________ (out of 35) Total Score ________ (out of 75) 1
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Part I: Efficiency, Public Choice, and Public Goods 1. (4 points) What does “The Compensation Principle” say? If there exists some possible set of transfers among individuals such that allocation E combined with the transfers would make everyone at least as well off as allocation D without the transfers, and at least one person better off, then a change from D to E is desirable. 2. (7 points) Briefly define the two attributes that distinguish public bads from private bads. Non-excludability: (A good is excludable if it is feasible and practical to selectively allow consumers to consume the good.) A bad is excludable if it is feasible and practical to selectively allow consumers to avoid consumption of the bad. (Musgrave, 1959) Non-rivalry: (One person’s consumption of the public good does not diminish the amount of public good available to others to consume.) One person’s consumption of a bad does not diminish the amount of the bad that others have to face. 2
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3. (10 points) Smoky Hollow Smoky Hollow has a population of two people, A and B. It also has a small factory (a smokehouse) owned by a third person, who lives elsewhere in the county. The smoke affects only A and B.
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AEM451_Econ409_prelim_solutions_Exam - First Exam AEM...

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