What are the economic characteristics of a common pool or…
What are the economic characteristics of a common pool or open access resource? What is the difference between the two(2)? Using a graph, illustrate the equilibrium conditions and quantities for a private resource compared to an open access resource [NB: indicate where MB=MC and TB=TC and the corresponding Q* and QOA]. (3 points) Assume a market in which there is a subsidy to producers of a fossil fuel, such as oil. Use a diagram to show how the removal of the subsidy can move the market to a new market equilibrium that represents an efficient allocation of price and quantity. What will be the likely environmental impacts, if the result is less oil produced and consumed? (2 points) Define market failures as a general concept. Specifically, what are externalities and how do they cause markets to fail? (2 points) Even if all subsidies are removed, the market allocation for oil is not efficient if oil production and consumption still leads to an adverse externality, such as pollution. Use a diagram to show how additional policies need to be adopted to internalize the marginal external costs (MEC) of pollution to achieve an efficient market outcome. (2 points) Using a diagram, show how the optimal level of polluting output can be alternatively reached by bargaining, regardless of whether the polluter or sufferer has the right to pollute. (2 points) What are two(2) limits to the Coase Bargaining solution? (2 points) Use a diagram to show that establishing a limit on the amount of polluting output can lead to an efficient market outcome, where compliance is mandatory and noncompliance leads to penalties. What information is needed to apply such a standard? (2 points)
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