Economics 5250/6250 Dr. LozadaFall 2013 Midterm Exam

This exam has 33 points. There are six questions on the exam;you should work all of them. Half the questions are worth 5 pointseach and the other half are worth 6 points each.

Put your answers to the exam in a blue book or on blanksheets of paper.

Answer the questions using as much precision and detail as thetime allows. Correct answers which are unsupported by explana-tions will not be awarded points. Therefore, even if you thinksomething is “obvious,” do not omit it. If you omit anything,you will not get credit for it. You get credit for nothing whichdoes not explicitly appear in your answer. If you have questionsabout the adequacy of an explanation of yours during the exam,ask me.

Answer all of the following questions.

1. [5 points] On page 64, your textbook says: “Calls for ‘no pollution’thus appear illogical.” Argue that the textbook’s position is wrong.Illustrate your argument with a graph (appropriately labeled).

2. [6 points] Suppose a polluter owns the property right to pollute, buta pollution victim engages in Coasian Bargaining with this polluter inorder to lessen the amount of pollution. On a graph, show how muchmoney would change hands once the final bargain is reached. If thereis more than one correct answer, graph all the correct answers.

3. [6 points] Suppose firms produce output Q, and this output causespollution. Suppose the government tries to reduce the pollution bysubsidizing the firms to decrease output. Graph the amount of socialcost—that is, the loss in social surplus—in each of the following twocases.

(a) The true Marginal Net Private Benefit curve lies above wherethe government thinks it is, but the government knows the truelocation of the Marginal External Cost Curve.

(b) The true Marginal External Cost Curve lies above where the gov-ernment thinks it is, but the government knows the true locationof the Marginal Net Private Benefit curve.

4. [5 points] What difficulties might occur due to the fact that Willing-ness to Pay is not equal to Willingness to Accept?

5. [5 points] Below are three quotes giving a 2013 update of the statusof the Kyoto Protocol. Give some historical background behind theactions of Russia, and, very briefly, of Canada.

(a) New Scientist, “Has the Kyoto protocol done more harm thangood?” 03 January 2013:

Fifteen years after its painful birth in Kyoto, Japan, theworld’s first legally binding agreement to limit emissionsof greenhouse gases ended this week. . . . Formally the pro-tocol lives on. Climate talks in Doha in December createda second “compliance period” stretching to 2020, whendiplomats promise a new deal involving all nations will

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come into force. But with Russia, Japan, New Zealandand Canada pulling out, this next period only covers na-tions which contribute 14 per cent of global emissions,mainly the European Union and Australia.1

(b) “Ghost of Kyoto Protocol haunts Russia’s energy plans,” 15 March2013:

Russia left Kyoto at the Doha climate talks after anamendment to terms of the second commitment periodwould have forced it to surrender carbon credits from thefirst phase.2

(c) “Climate Change: Russia Is Steamed About U.N.’s Kyoto CarbonCredit COP-Out,” June 23, 2013:

Russia has since announced that it will not be part of asecond Kyoto commitment period under these conditions,saying that they are committed to keep the credits andsell them to other countries regardless of a claimed COP“consensus” that would terminate them. They are stillsmarting over a snub during two-week-long U.N. Climatetalks in Doha, Qatari last year when, during the final min-utes, Vice Prime Minister Abdullah bin Hamad al-Attiyaended the eighteenth Conference of the Parties (COP-18) before their delegation which wished to be recognizedcould speak. While Christiana Figueres, the U.N.’s cli-mate chief, claimed that a consensus had been reached,Oleg Shamanov, the chief negotiator for Russia’s delega-tion called that an “absolutely obvious violation of thisprocedure.” Shamanov added, “This is a systemic issue.Unless we put our house back in order, we may not beable to guarantee that in 2015 we end up with somethingproductive.”3

6. [6 points] Consider the following quotation:

1http://www.newscientist.com/article/dn23041-has-the-kyoto-protocol-

done-more-harm-than-good.html2http://www.rtcc.org/2013/03/14/ghost-of-kyoto-protocol-haunts-russias-

energy-plans/3http://www.forbes.com/sites/larrybell/2013/06/23/climate-change-

russia-is-steamed-about-u-ns-kyoto-carbon-credit-cop-out/2/

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“A thing is right when it tends to preserve the integrity,stability, and beauty of the biotic community. It is wrongwhen it tends otherwise.” (Aldo Leopold, A Sand CountyAlmanac, 1949, p.262)

(a) Does this reflect consequentialism or non-consequentialism? Why?

(b) Does this reflect an anthropocentric or ecocentric ethics? Why?

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