1. Know how to do the static/dynamic efficiency problem.
Suppose the marginal benefit and marginal cost of extracting a nonrenewable resource is given by MB = 60 -0.5Q, MC = 10.
1) Graph the dynamically efficient market for two periods on one graph.
2) Graph the dynamically efficient market for each period on it's own graph. Suppose the government sets a price control equal to 20.
3) Illustrate the deadweight loss that results from the price control in each period. Why is this a deadweight loss? (Hint: Now that you know the dynamically efficient quantity and price for each period, graph each period on it's own graph. Impose the price control. Find the quantity that occurs in the 1stperiod with the given price control. How much is left over for the 2ndperiod? Find the deadweight loss in each period.)
2. Cap, Tax, or Neither? Please answer the each question around 5 sentences. And reference the attached articles.
- Do you support an emissions cap, emissions tax, or neither? Be sure to support your argument with economic reasoning.
- If you don't support an emissions cap or tax, do you have a different potential solution or idea for decreasing emissions? What is it?