exam 3 review

optimal pollution what is appropriate level of waste? how to achieve that level (who has to reduce how much?) identify efficient levels of pollution discuss market levels of pollution demonstrate how policy can reconcile

efficient allocation of a fund pollutant

efficiency difficult, use cost-effectiveness criteria select Q based on other criteria –safe for human / ecological health then, how to allocate responsibility for meeting this level? use cost-effectiveness criterion –not necessarily optimal, but minimizes cost given some level Q

cost-effective allocation: example assume 2 sources currently emitting 30 units reduce to 15 units how to allocate reduction between 2 sources?

cost-effective reductions

equal MAC cost of achieving given reduction in emissions will be minimized if and only if MC of control (abatement) equal across emitters what policy instrument to achieve equality? 1.emissions standards 2.emissions charges 3.emissions trading

1. emissions standards command and control equal reduction? not cost-effective first source lower cost total costs increase if both forced to clean up same

2. emission charges (taxes)

3. emissions permit system

sample question with the aid of a graph illustrate optimal pollution abatement if MAC = 10 – E with a per unit tax of $5. how would this change if MAC = 8 – E?

energy: efficient vs. market outcomes air pollution and climate policy Efficiency of C & C policy? –emissions standard set according to health “threshold” –protect the most sensitive members of popn But adverse health effects are occurring at pollution levels lower than the ambient standard

other problems space –no account for number of people exposed –sensitivity of local ecology –costs of compliance in various areas time –concentrations are important –standards based on averages –constant levels of control exposure –indoor pollutants important too

better to use other 2 instruments: charges vs. trading Emissions trading –Initial allocation matters –Free vs. auction –EU experience Windfall profits to big polluters –RGGE in NE NE states; emissions capped starting 2009 Emission charges –Tax damage costs per unit –Double dividend

population model of population growth on development model of development on population growth microeconomic theory of fertility

model of population on development O = LX –O: output –L: number of workers –X: output per worker O/P = (L/P)X…output per capita –P: population

output per capita output per capita determined by –share of population in labor force (L/P) –output per worker (X) whatever affects these 2 factors is population growth’s effect on development

factor 1: share of population in labor force changes in age distribution –rapid growth means higher percentage of young people large supply of people too young to work –slow growth means high % of older people retirement effect high pop growth retards per capita economic growth by decreasing % of pop in labor force

factor 2: output per worker most common productivity enhancer: accumulation of capital is there a connection between pop growth and cap accumulation? 2 connections: –more savings leads to more capital fast growing pop save less –law of diminishing marginal productivity with fixed factor (land), adding more labor diminishes productivity

could pop growth enhance output per capita? technological progress / economies of scale

model of development on population theory of demographic transition: as nations develop they eventually reach a point where birthrates fall stage 1: prior to industrialization, birthrates / death rates stable stage 2: after industrialization, lower death rates (same birthrates) stage 3: falling birthrates

demographic transition

microeconomic theory of fertility

changing desired family size decreased benefits –shift from agriculture to industry –less demand for children as social security –decrease in infant mortality increased costs –increased opportunity cost of mother’s time (more educational and labor mkt opportunities) –scarcity / cost of housing –cost of education