UT ECO 321 - Problem Set 2_Ch 5 to 8_Fall 2017 (3 pages)

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Problem Set 2_Ch 5 to 8_Fall 2017



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Problem Set 2_Ch 5 to 8_Fall 2017

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3
School:
University of Texas at Austin
Course:
Eco 321 - Public Economics

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Economics 321 Public Economics Prof Marika Cabral TA Katherine Keisler Fall 2017 UT Austin Problem Set 2 Due Monday October 2nd 1 Ch 5 When the state of Virginia imposed stricter regulations on air pollution in 2003 it also authorized an auction of pollution permits allowing some plants to emit larger amounts of ozone depleting chemicals than would otherwise be allowed and some to emit less Theory predicts that this auction will lead to a socially efficient allocation of pollution Describe how this outcome would occur 2 Ch 5 Suppose that demand for a product is Q 1 200 4P and supply is Q 200 2P Furthermore suppose that the marginal external damage of this product is 8 per unit How many more units of this product will the free market produce than is socially optimal Calculate the deadweight loss associated with the externality 3 Ch5 The marginal damage averted from pollution cleanup is MD 196 6Q The marginal cost associated with pollution cleanup is MC 20 2Q a What is the optimal level of pollution reduction b Show that this level of pollution reduction could be accomplished through taxation What tax per unit would generate the optimal amount of pollution reduction 4 Ch 6 Many towns and cities on the northeast and west coasts have passed bans on smoking in restaurants and bars in the past decade a What is the economic rationale behind these bans b Would there be similar rationales for banning smoking in i Automobiles ii Apartment buildings iii Houses 5 Ch 5 Caffeine is a highly addictive drug found in coffee tea and some sodas Unlike cigarettes however there have been very few calls to tax it to regulate its consumption or limit its use in public places Why the difference Can you think of any economic arguments for regulating or taxing it s use 6 Ch 5 Imagine that it is 1970 and your parents are in college debating the merits of the Clean Air Act of 1970 Your father supports the act but your mother says that since it only covers new plants it might actually make the air dirtier a What does your mother mean by her argument b How would you construct an empirical test to distinguish between your parents hypotheses 7 Ch 7 People in some neighborhoods pay annual dues to a neighborhood association Suppose this association refunds neighborhood dues to selected home owners who do a particularly nice job in beautifying their yards a Why might the neighborhood association provide this refund b At the most recent home owners association meeting home owners voted to end this practice because they feel it is unfair that some people do not have to pay their share of the costs of maintaining the common areas of the neighborhood such as the parks and pools What is likely to happen to the overall level of neighborhood beautification Explain 8 Ch 7 The town of Springfield has two residents Homer and Bart The town



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