Environmental Abatements

Question 1

What does the slope of a policy makerís indifference curve represent and why is it a straight
line?

Answer 1

The slope of the indifference curve represents how much consumption the policy maker/citizens are willing to give up for another unit of environmental quality or vice versa. It is a straight line because their marginal rate of substitution is a constant trade-off between environmental quality and consumption

Question 2

Assume a country operates a ìpolluter paysî climate change abatement policy. Which of the
two indifference curves labeled I and I1 is more likely to represent a policymaker who has
been successfully lobbied by a business. Give two reasons for your answer.

Answer 2

Indifference curve I1 as it results in a bundle with a greater level of consumption and is steeper reflecting consumption is valued more than environmental quality when compared to