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Final Exam
Economics 372
1. Explain the difference between these categories of pollutants. Give examples of each. Your answer should be very complete not only listing examples but also explaining why these are appropriate examples for this categorization.
a. Natural vs. anthropogenic
b. Stationary vs. mobile
c. Point vs. non-point
d. Local vs. global
2. This question centers on the impact of externalities on markets.
a. What are externalities?
b. How does the existence of external costs affect the efficient allocation of resources in competitive markets? Your answer should include an explanation of the condition for allocative efficiency in markets and why externalities influence the consideration of allocative efficiency in markets. Your presentation should be not only graphical but also accompanied with a written explanation.
c. If external costs exist within a market, explain how the legislative application of the Coase theorem could help resolve the subsequent problem with allocative efficiency.
3. Assume that analyst conclude that, at current abatement levels, additional control of sulfur emissions will cost society $500 per ton of sulfur removed from the air. They also conclude that the additional societal benefit received from this cleaner air will be $800 per ton. President Obama asks you to recommend whether more stringent pollution standards for sulfur emissions should be imposed. Although Obama is well known for his extraordinary intelligence you still need to explain to him, in detail, how to decide whether to change the pollution standards.
4. Describe the process of cost/benefit analysis and then explain how it would be used to determine whether asbestos removal is justified. No calculations are needed, you only need to describe the general process and how you would determine whether the project, or change in legislation, is worth doing as defined by the economic analysis.
5. From an economic viewpoint, at what point will society switch from non-renewable energy sources to renewable energy sources? Will this switch be gradual or sudden? Explain.
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