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Unformatted text preview: First Challenge: Solutions Environmental Economics: ECO 345 Fall 2011 Question 1 a. Bacteria is a bad, is non-rival and non-excludable. It is overprovided, since the cedar tree owners are not charged by the apple orchards. b. Whales hunted for food are goods and rival. The whales themselves are non-excludable in that anyone can harvest a whale for free, but of course once the whale is harvested it is excludable since the owner can prevent others from eating the harvested whale. The non-excludable part can cause an under provision of whales in that no inuit has an incentive to breed new whales. c. Whales here are goods that are non-rival and non-excludable. The market provides too few whales. d. Rhinos are goods that are non-rival, and Disneys fence makes them excludable. The rhinos are over provided in that Disney does not account for the externality costs. Question 2 a. No. The allocation has total production equal to: E 1 + E 2 = min (2 , 4) + min (2 , 1) = 2 + 1 = 3 , (1) For the Pareto preferred, give for example firm one all the capital and labor so that E 1 = min (4 , 5) = 4. Since more is produced, we have a Pareto preferred allocation....
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- Fall '11
- Environmental Economics