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ECON 3810. M Midterm

Question 1. (24 marks)

This question relates to the Trans Mountain Pipeline Expansion Project (TMPEP)

a. In the lectures and notes, three broad criteria for selecting projects was discussed. Does the TMPEP satisfy these criteria. Please brieáy explain your answer.

b.Please give your own opinion about this project. Does it meet your own ethical standards ? You may also approach it from a purely ícost-benefit'point of view, or a mixture of the two. You may mention other factors like the environment, national sentiment etc.

You may want to consult www.transmountain.com , Wikipedia or any online source you see fit.

Please limit your answer to the whole of question 1 to 500 words. (less is okay). Given the subjective nature of the question there are no wrong answers but presentation of the contennt will carry some weight.

Question 2.(8 marks)

a. Show on a demand supply graph how consumer surplus and producer surplus is defined

b. In general to evaluate welfare effects we need to consider the welfare of groups of individuals. What problem does consumer surplus pose in this regard ?

c. There are to firms in an economy facing a upward sloping supply curve in a perfectly competitive setting. Show graphically how you would find the total producer surplus in the economy.

Question 3.(8 marks)

a.Consider the following welfare function:  What sort of welfare function is W ? What restrictions would you put on the αi's for this to be a legitimate welfare function ?

b. In part a what does Ui represent?

c.If your goal is to maximize aggregate national welfare, what sort of welfare function would you use?

d.What is a Rawlsian welfare function meant to do?