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Unformatted text preview: DEPARTMENT OF ECONOMICS Fall Quarter, 2009 University of California, San Diego Professor T. Groves October 28, 2009 Economics 131: Environmental Economics Midterm Exam Instructions: Answer all four (4) questions in the space provided on the exam. All questions will receive equal weight. Please note that each question has a number of parts. To get full credit you must answer all parts of the question. Write your name on each sheet of paper and clearly label your answers. Name: Student ID: Question 1: Question 2: Question 3: Question 4: Total Points Name: Question 1. The town of Mahalla is built around a textile factory, the production of which is totally consumed by the towns residents and local businesses. The demand for textile products in Mahalla is P = 20- Q . The cost of every unit of textile that the factory produces is $2 . (a) What is the market equilibrium quantity and price? (b) The residents of Mahalla have complained to the local government that their health has been adversely affected by the emissions of the textile company. The local environmental research center estimated the cost of pollution is $2 for every Q produced. What is the socially optimal quantity, Q * , and how does it compare to the quantity in (a)? (c) If the residents were to have an unquestioned right to a clean environment, (i) what type of pollution control policy could the government implement that would be accepted by both the textile factory owners and the town residents? (ii) What is the optimal level of the policy instrument to achieve the socially optimal quantity, Q * ? (d) If, on the other hand, the textile factory has the right to pollute, (i) what type of policy could the government implement that would be accepted by both parties? (ii) What is the optimal level of the policy instrument to achieve the socially optimal quantity, Q * ?...
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This note was uploaded on 12/09/2009 for the course ECON 131 taught by Professor Groves during the Fall '09 term at UCSD.
- Fall '09
- Environmental Economics