Berkeley ENVECON C101 - Final Exam (3 pages)

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Final Exam



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Final Exam

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Pages:
3
School:
University of California, Berkeley
Course:
Envecon C101 - Environmental Economics
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EEP101 ECON125 Final 2003 Please be sure to write your SID and full name on your blue book no abbreviations or nicknames Each problem will contribute equally to the final score manage your time accordingly Make your solutions neat and concise Start each problem on a separate page and obey essay length restrictions graders reserve the right to only read up to the page limit Please read through the entire exam before you start Do you have any questions Ask them now Then take a deep breath and begin Good Luck Problem 1 Suppose that the United States has agreed to abide by a Global Warming Treaty 1 1 Draw a figure showing the relationship between the quantity of CO2 emissions Q and the Marginal Benefit for the U S if MB 1600 2Q Assume the treaty only allows the U S to emit Q0 600 Label Q0 and Q1 on your graph if Q1 is the emissions level that U S would emit if there were no treaty Calculate the compliance cost for U S graphically and numerically 1 2 Now assume that the U S utilizes two alternative reduction mechanisms Purchasing permits from Russia at price P 100 dollar per unit of CO2 emissions Using the Clean Development Mechanism CDM to build a clean energy plant in India This plant will reduce overall CO2 emissions at a marginal cost equal to MC 2Qa where Qa is the amount of CO2 emissions reductions obtained through the CDM a Draw a new graph showing the marginal benefit for the U S of CO2 emissions beyond Q0 Let Qp denote the amount of CO2 emissions accounted for through the purchase of permits Derive Qp and Qa numerically also show them on your graph b What are the treaty compliance costs for the U S c What is the total level of CO2 emissions in the U S 1 3 In less than one page describe and discuss at least five different obstacles to carbon trading between countries EEP101 ECON125 Final 2003 Problem 2 2 1 Essays a If a price support program is already in place will banning pesticides increase or decrease welfare A price support program increases the output price above the market price Page limit half a page b Under what kind of market structure and externality costs can we have under use of pesticides Provide a graph to explain your point Page limit one page 2 2 Pesticide damage control framework A farmer knows that during a high pest year the proportion of the total crop lost due to pest damage is DH X where X is the amount of pesticide used During a low pest year the damage function is DL X Potential output in the absence of pests is Y The probability for a high pest year is and output price is p and fertilizer price is w The farmer can use pesticides preventatively Prevention or she can use Integrated Pest Management IPM Prevention a Write the equation for expected profit under preventative approach Interpret b Write the condition for the optimal level of pesticide use under a preventive approach The condition should be in general terms using the notation above and employ the concept of marginal benefit and cost IPM Under IPM the farmer invests in monitoring to find out whether it is a high or a low pest year and applies pesticides accordingly c Write out the conditions for optimal level of pesticide use under IPM for high pest year and for low pest year Assume that under Prevention farmer profits are 40 in a high pest year and 60 in a low pest year under IPM profits are 45 high pest and 75 low pest but with an additional fixed cost of 5 for monitoring Suppose that the probability of a high pest year is 5 d What is the average profit under Prevention and IPM e How much are farmers willing to pay to use IPM EEP101 ECON125 Final 2003 Problem 3 While sitting in your favorite caf studying for your finals you overhear someone talking on his cellar phone for all to hear He is a government employee and you learn that he works for the Sate of Euphoria Department of Environmental Safety I mean it s my job to make sure people are safe from environmental dangers I m going to quit because the governor only listens to those evil economists who don t care about people s safety at all In fact they want to cut my budget while people are still getting sick I told the governor that as long as people are still getting sick from pesticides I should be getting a bigger budget in order to help stop people from getting sick says the man on the phone a You as an economist sit back and think about what he just said and wonder if the economists really are evil Write a note to this government employee a paragraph or two in length explain why a good economist could possibly advise the governor to cut the budget for Environmental Safety even when not every single person is perfectly safe How should the government decide how large of a budget to give the Department of Environmental Safety Hint Your answer should include the word Marginal The Environmental Safety employee sees you listening to his conversation and comes over to talk to you After talking to him for a few minutes he tells you a few things 1 His job is to build and install water filters throughout the state and 2 He happens to know that there is a direct relationship between how many filters he installs and the number of days people are sick in the state Sick Days f filters 1 000 000 S 1 F b c d e If all the government employee cares about is preventing people from getting sick how many filters would he like to install If the price of a water filter is 1000 and the Department of Environmental Safety has a budget of 3 999 000 how many sick days will occur If instead of a budget cut the Department of Environmental Safety actually receives 1 000 000 in additional budget money How many fewer sick days occur from this additional budget What is the implicit price of reducing one more sick day Congratulations You made it


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