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Unformatted text preview: 1 Rough grading scale for first exam: • A: 85-100 • B: 72-84 • C: 55-71 • D: 40-54 • F: below 40 • average score on first exam: 67 • Next week’s discussion sections (Oct 28 - Nov 2) will review Problem Set 3: – Chapter 10, pages 290-291: problems 1 and 2 – Chapter 11, pages 320-322: problems 3, 4, 8, and 9 Chapter 11: Externalities and Property Rights A. External costs B. External benefits C. Negotiation and the Coase Theorem D. Using taxes to internalize negative externalities E. Using subsidies to internalize positive externalities F. Regulation versus market-based solutions First application: Dealing with sulfur dioxide air pollution • Clean Air Act Amendments of 1990 issued permits to emit SO2 • Companies were allowed to buy additional permits if needed or sell extra • Goal was to achieve target reduction in air pollution at lowest cost Results: • pollution reduced well below goal • Cost was 30% lower than original EPA plan Second application: strategies for dealing with global warming Some potential consequences of global warming: • spread of tropical diseases • big changes in agricultural productivity • sea level rise (hundreds of years?) 2 Optimal economic solution: impose a tax on carbon emissions equal to marginal external cost • About 75% of published studies assign a marginal external cost of $5-$25/ton (assuming a 3% discount rate) • But some studies estimate a marginal external cost of hundreds or even thousands of dollars per ton Alternative strategy: cap and trade • Policy chooses level of carbon emissions we want to achieve • Emitters can buy or sell permits (as in SO2 system) • Advocates of cap and trade argue that tax may not discourage emission sufficiently • However, if the tax correctly reflects...
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This note was uploaded on 03/02/2012 for the course ECON 2 taught by Professor Kim during the Fall '08 term at UCSD.
- Fall '08