CL3 & CL4

Question 1

How do economist assess abatement policy options?

Answer 1

1. They look at the estimated cost of reduction of greenhouse gas emissions
2. Abatement policies are adopted in ascending order of cost

Question 2

What is the Feasible Set?

Answer 2

• To study environment-consumption trade-off, we invert the least-cost abatement curve. Such a flip will guve us the feasible set.

Question 3

What are indufference curves?

Answer 3

Indifference curve show the combination of two goods in different quantities that have the same level of utility (satisfaction) to an individual.

Question 4

What is the principles of abatement?

Answer 4

• Only policies on the frontier of the fesible set must be considered
• The combination of environmental quality and consumption on the highest possible indifference curve is chosen

The optimal abatement level is where the slope of the feasible set equals the slope of the indifference curve

Question 5

What is AS and AD?

Answer 5

Aggregate supply(AS)
*Real GDP
‘Output’
**Aggregate demand (AD):
**Nominal GDP
*Total spending on domestic goods and services (C + I + G + XN)

Question 6

What are Sanctions?

Answer 6

Restrictive policy measures that one or more countries take to limit their relations with a target country in order to persuade that country to change its policies or to address potential violations of international norms and conventions

Question 7

What do sanctions entail?

Answer 7

Economic sanctions involve a sanctioning country or a coalition (a sender) and a sanctioned state (a target)

Question 8

Why enforce sanctions?

Answer 8

Persuade the target country to change its policies or address potential violations of international norms and conventions

Threat of sanctions are a deterrence mechanism. Sanctions, therefore, can be seen as ‘expected punishment’.

Question 9

How can we measure the effect of sanctions?

Answer 9

1. Lowering GDP per capita
2. Unemployment rate
3. Sector specific effects
4. Inflation and exchange rates

Question 10

What are some considerationsregarding the effectiveness of sanctions?

Answer 10

Traditional v. smart sanctions
Good idea on paper =/= effective
Resilience

Question 11

How do AS/AD curves work?

Answer 11

Question 12

What are the two types of game theory?

Answer 12

1. Simultaneous (static)
   - At least 2 players take a decision
   - At the same time
   - Outcome depends on what both players do
2. Sequential (Dynamic)
   - At least 2 players take a decision
   - Players take this decision in an order one by one
   - Responese to one another

Question 13

What is the Nash Equilibrium in game theory?

Answer 13

Optimal outcome is when there is no incentive for players to deviate from their initial strategy (best response to the other)

Question 14

What is the Dominant Strategy in Game Theory?

Answer 14

Best results out of all the possible strategies that can be used, regardless of the strategy that the opponent uses

Question 15

Find the dominant strategy and the nash equilibrium?

Answer 15

1. Dominant Strategy
   Invest when the other player does not invest.
2. Nash Equilibrium
   When both players do invest