436 Problem Set 1 SU17.pdf - Economics 436 Summer 2017...

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1 Economics 436 Summer 2017 First Problem Set Due June 22 nd I. A. Describe the materials balance model. The use of a diagram is optional. B. The materials balance model suggests that one way of reducing pollution would be to reduce the ratio of residuals to GDP. Briefly discuss the technical alternatives available for doing so, and why the private benefits from undertaking these activities are generally less than the social benefits. C. What is the most general definition of externality? Explain why technological externalities may result in economic inefficiency but pecuniary externalities do not. II. Suppose a pulp mill has the right to discharge its wastes into a river. The wastes cause damage to fish, and therefore to recreational anglers. The dollar value of marginal damages to anglers is given by the equation, MD = 20Q. The dollar value of the marginal benefits to the pulp mill of discharging its wastes into the river is given by the equation, MB = 1,500 – 30Q.
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