1. Classroom Exercise of Cap & Trade
ECON1/EEP3 GSI Koichiro Ito

2. Set up Get a handout and make a pair with your classmate
Decide which of you plays Berck Petrochemical or Clean Tech Du
Don’t look at the information of another company
Read the first few paragraphs.
Try Task1

3. Negotiations: Let’s do Task 2 and 3!
You want to write down your payment as a positive number (+) and your revenue as a negative number (-) since we’re talking about the cost
Cut off the permits to sell
When you’re done, raise your hand. If it looks you’re done, I’ll give you chocolate!
Extra chocolate is rewarded if you minimize your cost best among classmates who play the same company

4. Implications Du 1 2 3 4 5 6 7 8
Total Abatement Cost ($) 15 30 50
100
300
700
2000
Berck 8 7 6 5 4 3 2 1
Total Abatement Cost ($)
5700
4600
3600
2700
1900
1200
600
100
Total
4605
3615
2730
1950
1300
900
800
2000
Total abatement cost (society as a whole) is much cheaper when we allow trading. That is, it is more efficient.
Importantly, this result is induced by firms’ profit maximizing behavior, not by the order by the government

5. MAC (Marginal Abatement Cost) Curves