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Unformatted text preview: First Challenge Environmental Economics: ECO 345 The following formulas may be useful. Efficient Allocations MRS 1 xy = MRS 2 xy , MRTS 1 LK = MRTS 2 LK . (1) Market Allocations MRS 1 xy = MRS 2 xy =- P x P y = MRT xy , MRTS 1 LK = MRTS 2 LK =- w r . (2) Efficient Allocations of goods with and without externalities P S = MC S ( S ) = dC s ( S ) ds . (3) P S = MC S ( S ) + MD ( S ) = dC s ( S ) ds + dC T ( T,S ) ds . (4) Selling the Right to Pollute P ′ = MD ( S ) = P s- MC ( S ) . (5) Pigouvian Tax t = MD ( S ) = MD 1 ( S ) + MD 2 ( S ) + MD 3 ( S ) = MC ( S ) . (6) Short Answer (1-2 sentences per part!) Question 1 (16 points) Define each term in bold as a good or a bad, rival or non-rival, and excludable or non- excludable. Qualify your answer if necessary. Finally, for each does the market economy provide too much, too little, or the efficient amount of the good/bad? a. Bacteria. Red cedar trees are carriers of a bacteria which kills apple trees within a two mile radius. b. Whales. Inuit hunt whales for food and oil. c. Whales. Deana enjoys whale watching in Santa Barbara. d. Rhinos. Endangered rhinos in Disney’s Animal Kingdom sometimes break through the park fence and trample resident’s gardens....
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- Fall '11
- Environmental Economics