ECON 467: Environmental and Resource Policy Fall 2021
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
Sample Midterm
ECON 467: Environmental and Resource Policy
Fall 2021
Please read: This sample midterm contains “representative” quantitative questions. The aim is to demonstrate the types of calculations that might appear on the midterm. It is not exhaustive in coverage.
1. Suppose firms 1 and 2 have marginal abatement cost of pollution
MAC1 = 
− (1/s)x1 and MAC2 = 
− [1/(1 − s)]x2
where x1 is the amount of pollution released by firm 1, while x2 is the amount of pollution released by firm 2.
(a) Suppose 1 > s > 0.5 Draw marginal abatement cost curves for firm 1 and firm 2. Label all curves to indicate the corresponding firm.
(b) For a given level of emissions, which firm has higher marginal abatement cost?
(c) Explain why it is social inefficient (i.e., does not satisfy the equimarginal princi- ple) to use command-and-control regulation with equal emissions standards for both firms whenever s 
0.5. Would it be socially inefficient to use command- and-control regulation with equal emissions when s = 0.5? Explain why or why not.
(d) Suppose both firms face an identical emissions fee. Calculate aggregate marginal abatement cost for aggregate emissions x = x1 +x2. On a separate graph, draw the marginal abatement cost functions of each firm and the aggregate marginal abatement cost.
(e) Suppose aggregate damages from pollution are MD = (D − 1)x. Calculate the socially optimal level of pollution emissions x⇤
2. Suppose there are two polluters (A and B) with marginal abatement cost ‘MAC’ of pollution given by the functions:
MACA = a − ZA and MACB = b − ZB
where the parameters are assumed to be b > a > 0. Suppose pollution generates constant marginal damages equal to d. That is,
MD = d
(a) Using a graph with pollution on the horizontal axis, draw the MACA and MACB . Next, in the same graph, draw the aggregate abatement cost and briefly explain how it was constructed (one or two sentences is sufficient).
(b) Assume the following: b > a > d > 0. Use a graph to illustrate the social optimal level of pollution, and the corresponding levels of pollution for firm A and B.
(c) Assume the following: b > d > a > 0. Repeat analysis from part (b).
(d) Assume the following: d > b > a > 0. Repeat analysis from part (b).
3. Consider a farmer that pollutes a river from fertilizer use and a downstream landowner that uses the river for domestic water use. The farmer has a total benefit B(X) and marginal benefit MB(X) of pollution X, while the landowner has a total cost C(X) and marginal cost MC(X) of pollution X. Assume that B() and C() are increasing functions, while MB() is decreasing and MC() is increasing.
(a) Use a graph to determine the social optimal amount of pollution X*.
(b) Suppose the farmer has the right to pollute the water. Without any bargaining between the parties, determine the equilibrium amount of pollution Xf using a graph. In the same graph, determine the corresponding deadweight loss associated with Xf .
(c) Suppose the landowner has the right to clean water (Xl = 0). Without any bargaining, determine the deadweight loss associated with Xl using a graph.
(d) Suppose the farmer has the right to pollute the water, but now the landowner can offer the farmer a payment of P in exchange for the polluter to pollute an amount X**. Determine the equilibrium payment P and pollution amount X**.
(e) Suppose the landowner has the right to clean water, but now the farmer can offer the landowner a payment of P in exchange for being allowed to pollute an amount X**. Determine the equilibrium payment P and pollution amount
X**.
2022-03-05