Question

1

a) Show that when all consumers and producers are price takers, a competitive equilibrium is always Pareto optimal.

b) Despite economists’ support of a market approach to environmental policy, the command- and-control approach continues to dominate the policy of most nations. Explain why this is the case. In your response, cite and then comment on some of the common criticisms of market-based initiatives. ( 6 mark )

c) Explain the following using appropriate diagram. ( 20 mark )

i. Pigouvian Tax

ii. Pigouvian Subsidies

iii. Deposit/refund systems

iv. Pollution permit trading systems

Answer 1