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by: Mr. Warren Barrows


Mr. Warren Barrows
Texas A&M
GPA 3.72


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Class Notes
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This 4 page Class Notes was uploaded by Mr. Warren Barrows on Wednesday October 21, 2015. The Class Notes belongs to AGEC 350 at Texas A&M University taught by Staff in Fall. Since its upload, it has received 47 views. For similar materials see /class/225926/agec-350-texas-a-m-university in Agricultural & Resource Econ at Texas A&M University.

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Date Created: 10/21/15
Selected brief answers for review questions for nal exam Fall 2006 AGEC 350 Don 39t forget you may bring a 3x5 notecard t0 the exam These are brief answers intended to help you nd the complete answers In most cases I would expect a more complete answer on the exam While I don t actually draw graphs in these notes I make reference to graphs thatI hope are sufficient for you to understand what I m saying If you re still in doubt contact me and I ll clear it up If you re still confused consult with Dr Woodward or attend one of the review sessions Good luck Recycling N W The privately efficient level of recycling would be where the private marginal cost of recycling equals the private marginal cost of disposal at about 40 If individuals pay a at rate for all their garbage then they do not face the marginal cost of disposing Hence they will continue to throw out their garbage even when their marginal bene t is very small even though the marginal cost of disposing the waste ie costs paid by the city and society at large is not zero Without a unit charge therefore the marginal bene t to the users is greater than the marginal cost to society so at the margin at least the situation in inef cient If individuals pay a fee for each unit of garbage they throw out they will tend to look for ways to reduce their garbage by recycling composting or waste reduction If a xed rate per month for garbage disposal is maintained then the MC faced by a consumer for landfilling will be zero a horizontal line at zero and the consumer will only recycle that portion of the trash that gives him or her positive value e g warm glow All the rest of the garbage would go to the landfill If the true MC of recycling is positive then the for some of the consumer s trash the social MC of land lling is greater than the MB to the consumer of land lling instead of recycling Hence a socially inef cient outcome results Privaie MC MC Privaie MC Disposal IOU 80 60 AU 20 0 lt7quot Percent semi To Londrrii 4 The 40 rate is not cost minimizing It looks like they are actually getting a warm glow from recycling leading them to recycle some of its waste even when it would be cheaper to just send it to the dump Porter and van der Linde PampvdL 5 See the reading packet for a bunch of examples The basic point of PampvdL is that regulations can lead to innovation offsets actually reducing costs rather than increase costs as economists typically assume 6 You should be able to rephrase these in your own words 1 It can provide signals to companies about likely resource inef ciencies and potential technological improvements 2 Can increase corporate awareness by improving information gathering 3 Reduces the uncertainty that investments to address the environment will be valuable 4 Creates pressure that motivates innovation and progress 5 Levels the playing field during the transitional period so that firms that are working to improve their environmental performance and bottom line are not undercut by firms that are ignoring the environment 6 Regulation is essential when the quotoffsetsquot ie the increase in pro ts are incomplete 7 Regulations should 1 create the maximum opportunity for innovation 2 should foster continuous improvement rather than locking in any particular technology 3 should leave as little room as possible for uncertainty at every stage 8 While there may be some costsaving opportunities that rms discover in order to comply with environmental regulations most economists do not believe that there are lots of quot10 billsquot lying around on the oor of businesses If there is money to be saved usually these have already been found and the businesses don t need environmental regulations to help them nd them Managers from rms that PampvdL use as cases that saved money all agreed that quoton the whole environmental regulations amounted to a signi cant net costquot Toxic wastes 9 Risks in the workplace You should be able to use a graph to make these points andor interpret at graph about this problem a Since firms need to compensate their employees for increased risk they should pay the employee a risk premium price up until the point where it would be cheaper to actually reduce the risk Hence if the labor market works perfectly the costs to the rm will be minimized You should be able to use a graph similar to the one used in lecture ST 1 Labor markets need to be perfect with no unemployment The theoretical model that shows that labor markets will efficiently deal with risks requires an assumption that labor markets are perfect and that there is no involuntary unemployment 2 Information needs to be perfect with workers fully aware of the risks they face 10 Toxic waste would typically be considered a stock pollutant hence when developing policies to deal with these pollutants it is important to consider not only the current population and condition of the toxic waste but future population and potential future risks as well In contrast for ow pollutants it is easier to pay attention to just the present bene ts and present costs 11 The risk of a lawsuits leads rms to nd ways to avoid those risks and therefore improve their environmental performance In other words the threat of a lawsuit encourages rms to internalize extemalities They can however be a fairly blunt and inefficient way to achieve environmental improvements leading to lots of transaction costs legal expenses and compensation in excess of the damage done punitive damages 12 First a regulation can reduce a very small risk while introducing a very large risk For example saccharin was almost eliminated because of a small risk of cancer although this sweetener is of great value to diabetics Similarly in the area of medicine it wouldn39t make much sense to prohibit a very effective AIDS medicine if it introduced a very small risk of cancer Secondly if regulations are very costly then this can lead people to reduce their expenditures on riskreducing measures in the rest of their lives For example if people are required to put very expensive fire alarms in their homes this will cause some people to choose not to take other simple measures like installing carbon monoxide alarms Environmental Justice 13 A policy is vertically equitable if people with different incomes are treated equally A policy is horizontally equitable if when comparing people at the same income level people from different regions different races or different ethnic groups receive the same net benefits We usually do not expect all policies to be perfectly equitable since the bene ts and costs that people gain is often highly correlated with their income For example changes in income taxes typically have a much greater impact on the rich than they do on the poor The same is true for many environmental policies particularly if bene ts are measured in terms of willingness to pay since the rich have more money with which they would be able to pay At least since FDR s New Deal most policies in the US have sought to be progressive providing more bene ts to the poor than to the rich as a proportion of their incomes In contrast if the consequences of a policy are horizontally inequitable this suggests that there is probably some noneconomic reason for unequal distribution of the bene ts or costs This is of greater policy concern in the US because it might be inconsistent with the equal protection clause in the 14th amendment to the Constitution 14 Because of economic considerations landfills are typically sited in areas where land values are low a characteristic which tends to be associated with poorer neighborhoods Hence there is a natural economic correlation between proximity to land lls and poverty Combine this with the fact that in many cities many of the poorest neighborhoods are predominantly African American and Hispanic and you end up with a situation where pure economic considerations might appear to be horizontally inequitable Further complicating the problem is the fact that once a land ll is sited land values near the site tend to fall and poorer people tend to move in There has been abundant research attempting to determine if the land lls sittings are unjust While I don t think that there is 100 consensus on this issue most of studies indicate some horizontal inequity in how land ll sites have been chosen Sustainability 15 Eco The assumption of exponentially growing population has been approximately accurate over the last 50 years though it is predicted to become less accurate in coming decades However food supply has grown even faster Because Malthus model doesn t take into account technological progress which has fostered growth in agricultural productivity the model has not been very successful There are those who believe that agricultural productivity growth is slowing if this is true then Malthus model might be quite relevant to the future Weak sustainability It allows for tradeoffs between natural and physical capital hence Hartwick s rule invest resource rents in other forms of capital is based on a weak sustainability perspective nomics of resource conservation The Article by David Simpson If opportunities for substitution are abundant then the costs of environmental degradation are diminished because if one service is lost it can be replaced by something else Hence economists tend to view protecting the environment more as valuable but not invaluable or essential This means that governments should tax actions that are harmful to the environment or subsidize actions that are beneficial More exactly it means adjustments should be made so that agents internalize extemalities The paradox of value is that things of great intrinsic value eg water may have very low prices while things of little intrinsic value eg diamonds often have very high prices Prices are determined on the margin ie depending on how much we would be willing to pay for a little more of a good Most of the time however we would not be willing to pay very much for a little more water since we can always walk down the hall to get more Similarly supplying a little more water is typically pretty inexpensive once a pipe is in place getting an extra gallon costs almost nothing Diamonds on the other hand have exactly the opposite qualities


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