ESG post-midterm Flashcards
1
Q
Explain the competitive equilibrium with a negative externality
A
SMC = PMC + Xternal Costs
Private Marginal Costs VS Societies Marginal Costs
MB: Marginal Benefits
The equilibrium quantity is significantly lower when we calculate in the negative externality & by default the price is much higher as well
2
Q
How do we apply the marginalist principle to pollution
A
3
Q
What are some examples of abatement?
A
Installation of scrubbers
waste Treatment
Carbon Capture and Storage
4
Q
What does the PMB of abatement mean
A
The Private Marginal Benefit of Abatement is less than the Social Marginal Benefit which means that private firms are incentivized to generate less abatement
5
Q
Deadweight loss under abatement
A
Occurs under a positive externality due to the fact that the social amount of abatement is higher than the privately produced abatement.
The social MB is higher than the private MB
6
Q
How does carbon capture and sequestration work?
A
7
Q
What are the solutions to environmental externalities?
A
- Internalize the externalities by unified ownership (mergers)
- Quality controls or standards
- Taxes on polluting activities
- Subsidies for abatement
- Assignment of property rights
- 1 Coasian theory of property rights
- 2 Torts/ legal remedies
- 3 Creation of a market: Trade permits allocate “pollution rights” that can be priced and traded
- Social responsibility & Utilitarian ethics
8
Q
Explain internalization via mergers
A
When 2 firms exert negative or positive externalities on each other then the externality can be corrected by merger, possibly even increasing profits
EXAMPLE: Fishery and pulp mill
9
Q
What is an externality associated with fish farming that could not be easily corrected from internalization.
A
Farmed salmons have escaped and passed bacteria and parasites to wild salmon reducing their numbers
10
Q
Explain Cap and Trade
What does it incentivize?
A
Government can reduce DWL associated with pollution by setting a maximum overall amount and issuing pollution permits.
It incentivizes firm pollution reduction for those that it is easy to do and they can trade their permits
11
Q
What are the different options for initial allocations of cap and trade permits?
A
Auctioning or grandfathering
12
Q
Cap and trade makes sense when _____________?
A
Firms differ in their marginal benefits and costs of emission
13
Q
Explain Taxing Bads
A
When taxing goods govmnt gets revenue, but at the cost of DWL, when taxing bads govmnt gets revenue while reducing DWL
14
Q
How has the carbon tax in BC worked?
A
It has been creating a pogressive carbon tax $10/ton to $30/ton -> 6.67cents/litre to gas prices.
Has led to a carbon emission decrease of approximately 15%
15
Q
How do we set a tax for externalities?
A
such that the tax = externality
PMC + t = PMC + x = SMC
16
Q
What are some complaints around pollution taxes?
A
That they pass off the cost to consumers and that consumers may be unresponsive to the change as well as have a high cost to low income earners.
17
Q
How does geography and jurisdiction impact externalities?
A
Whether there is global or local pollution i.e. air pollution(local), acid rain (cross-boarder), CFC and GHG (global)
Global externalities lead to lower set taxes
Need protocols
18
Q
Rapa Nui people on Easter Island around 1500AD
A
19
Q
Simple “Population” Model
A
- Entity reproduces without competition
- More entity there is more reproduction
- Crowding effect kicks-in
- Eventually stock of entities reaches its maximum size where growth is zero, this is “carrying capacity”
20
Q
Crowding Effect
A
Newborn entities must compete with large existing entities stocks for survival
21
Q
Carrying Capacity
A
When stock of entities reaches its maximum size where growth is zero
22
Q
Explain the variables in the growth curve
A
- G is the dependent variable, growth (births - Deaths) of a stock S (independent variable)
- r is the intrinsic growth rate of the stock ( absent “competition”)
- K carrying capacity
- G/S is the growth rate of stock
- M is the point where the crowding effect is such that the change is the growth amount is zero
23
Q
What is the formula for the growth curve?
A
G= rS (1-S/K)
24
Q
When we look at the harvest curve, where could we harvest sustainably harvest 1 and 2. Where H2 is at the apex of the curve and H1 bisects it in the middle
A
H1, at 2 points where the stock level intersects with the curve, one will be lower than the other
H2 at one point where change in growth amount is zero, aka M where the crowding effect kicks in
25
When we look at the harvest Equilibria explain which is stable?
Harvesting H1 at SH is stable. If there is a shock that reduces stocks, the growth amount is above the harvesting amount and the equilibrium will self-restore.
26
When we look at the harvest Equilibria explain which is unstable?
Harvesting H1 at SL is unstable. If there is a shock that reduces stocks, the growth amount is below the harvest amount and the stock will be driven to extinction.
27
When we look at the harvest Equilibria explain which is semi-stable?
Harvesting H2 at M is semi-stable. If there is a shock that reduces stocks, the harvesting amount will exceed the growth amount and so in the next period the stock will fall again unless the harvest is dramatically reduced.
28
What factors should we consider in harvest choices?
1. What is the intrinsic growth rate? (high for fish, medium for trees)
2. How big/common are the shocks and how good/costly is the monitoring?
3. Is it economic to use the resources? (High cost low demand)
4. Is it economic to save the resource? (low harvest cost, current value high low growth rate)
5. Cyclical management: We may want to over harvest some years and under harvest other years
29
Why did we deplete the Grand Banks to zero?
1. Tragedy of the commons: Over-grazing by countries of a shared resource
2. Property-Rights Assignment issues
3. Open access problem: hard to control is preventing access and policing is difficult/impossible
4. Information problems: Didn't know the size of the resource
5. Transfer-Seeking: Spanish were stealing, and Canadians lobbied for greater fishing quotas
30
What is the tragedy of the commons?
Lack of property rights leads to an over-use of a common resource
31
Open access problem
With resources that are common goods (rival and non-excludable) there is a over-harvesting
32
Stocks are hard to measure, harvests hard to control. Keep H____ G(bar) and S___ M
below stocks above
33
With renewables, sustaining the resource is possible, but requires _________
Careful management
34
What is a non-renewable resource?
A resource that doesn’t renew themselves in human time frames, thus it is impossible to exploit them in a way that sustains the stock for future generations.
35
What is Hartwick’s rule?
Sustainable standard of living: Requires investments in productive assets to make up for resource depletion. Invest all the surplus profits generated by resource extraction into various forms of capital. Such as Alberta’s heritage Savings Trust Fund
36
Population grows ________
Geometrically
37
Food production increases _________
Arithmetically
38
What are the equations from Malthus?
Pop: P,t = 2(P,t-1)
Food: Ft = F,t-1 + 2
39
What is the Malthusian Trap? How have we escaped it?
Malthusian trap is where population grows until it cannot feed itself anymore, war, pestilence & famine act as constraints.
Birthrates have lowered due to improved healthcare, nutrition & educated parents.
Technological improvements to food production
Better institutions to prevent war
Medical developments to reduce disease
40
How many pounds of minerals, metals and fuels to average person need?
3.7 mill or 1650 tons
41
What is the carrying capacity of humans on our planet?
4b-16b, & with resource depletion 1-4b. We are likely already exceeding the carrying capacity.
42
What are the solutions to over-capacity?
Prophets: William Vogt "Apocalyptic environmentalism"
Wizards: Norman Borlaug "Techno optimism"
43
What is the modern environmental movement?
Only reducing consumption and limiting population.
Affluence is not our greatest achievement but our biggest problem
Unless we change, the unavoidable result will be environmental destruction
"cut back, cut back"
44
The Green Revolution
Science & technology, properly applied will save us
Green movement of 1960s: High yielding crop varieties and agronomic techniques increased grain harvest averting tens of millions of deaths.
Only getting richer and more knowledgeable will resolve our environmental crises
"Innovate, innovate"
45
Radioactive waste generated by nuclear fission is potentially
deadly to human beings and nuclear waste lasts a long
time. Which concept is applies well to nuclear waste?
Nuclear wast disposal creates NotInMyBackYard problems. NIMBY
46
What does NIMBY mean?
Not in my back yard
47
Where are location of bads usually stored? And what problems come from it?
The NIMBY problem is that there is a relatively small number who live near to a toxic waste dump bear high costs.
Those who bear the costs should be compensated
The political struggle over where to place bads can yield outcomes that are inefficient, unfair or both
48
What are some examples of NIMBY problems
safe injection sites, garbage incinerators, prisons & wind turbines
49
When can policy solve problems?
When it's possible to assign property-rights, levy taxes, impose standards/quotas, internalize externalities or provide public-good (removal of public-bad)
50
What are some issues that arise from environmental international problems?
There is no international law
Trade treaties are used in environmental policy bargaining, which often leads to transfer-seeking, particularly because monitoring is difficult.
51
Exploiting non-renewable resources ____ be done
| sustainably.
Cannot
52
Some of the wealth from non- renewable resources can be ______ in other types of _____. This is an example of?
reinvested, capital
Hartwick's Rule
53
The world's growing population will likely be ______ by depleted natural resources.
restrained
54
There are two school's of thought on how to address our
| environmental crises: The `______' and the `________'.
wizards prophets
55
The ______ problem is a barrier to achieving efficient
| outcomes and can also have fairness issues.
NIMBY
56
International problems require __________ from _____ governments. The story of _____ and the ________ demonstrates that it is possible to address global problems.
collective agreements from national governments.
CFC's and Ozone layer
57
How helpful is geo-engineering?
It's not helpful at this point in time
58
How much has our planet warmed already, on average since the beginning of industrialization?
1.0 Celsius
59
Compared to 1850 how much more carbon dioxide is in our atmosphere?
40%
60
What is considered "safe" levels of GHG concentrations in our atmosphere?
350ppm
61
If our planet warms by 2-3 degrees celsius what % of plants & animals are not likely to survive
20-30%
62
What are GHGs? And what are the % breakdowns?
Green house gases:
- C02 (fossil fuel 57%), (land use 20%)
- Methane (14%)
- Nitrous oxide (7%)
63
What generates methane?
Agricultural activities, waste management and energy use.
64
What generates nitrous oxide?
Agricultural activities & fertilizer use
65
rank the worst to the best golbal warming gases
```
SF6
CFC/HFC
N20
Methane
C02
```
66
When has most of the warming on our planet occurred?
35 years
67
How have the oceans been impacted by climate change?
The oceans have absorbed most of the increased heat with the top 700 meters of ocean showing more than 0.2C since 1969.
68
What is the evidence of climate change? 8
```
Global temperatures rising,
Warming oceans
Shrinking Ice sheets and declining Arctic sea ice
Glacial retreat and decreased snow cover
Rising sea levels
Ocean Acidification
Extreme weather events
```
69
How have the shrinking ice sheets and declining arctic sea ice occured in the last 20 years?
The rate of Antarctic ice mass has tripled in the last decade
Greenland 281b tons of ice/year 1993-2016 & Antarctic 119b in the same period
70
Glacial retreat & Decreased snow cover
Snow is melting earlier & decreasing
71
How much has sea levels rising
20cm in the last century
Rate in the two decades has nearly doubled that of the last century
72
Ocean Acidification
Acidity has increased by about 30%
2 billion tons of C02 per year in the upper layer
Destroys the ecosystem such as the Great Barrier Reef
73
What are some examples of extreme events
- Heavy rains
- Drought
- floods
- Hurricanes
74
What are tipping points?
thresholds that make a system change from one qualitative state to another
75
What are feedback loops?
Threshold behaviour that is based on self-reinforcing processes
76
What is the albedo effect?
When the water is darker than the ice which leads to melting ice bodies
77
give 3 example of tipping points/ feedback loops
Melting ice bodies due to the albedo effect
Changing ocean circulation due to the shutdown of Atlantic thermohaline current
Changing air circulation due to jet streams weakening or slowing down which can lead to persistent weather systems and more extreme weather
78
Explain the Kyoto protocol
What was its shortcomings?
How did Canada fare?
Nations agreed to reduce their emissions to 5.2% below their 1990 levels
US did not ratify, developing countries were not included, no penalties for non-compliance
Canada was 24.2% above 1990 and pulled out in 2011
79
What is the Paris agreement?
| Shortcomings?
2015 UN climate conference
Aims to limit global warming to less than 2 degrees above pre-industrial
"Binding" for at least 55 countries, together representing 55% of emissions
Countries can withdraw & no penalties for non-compliance
80
Critics of the Paris agreement say what?
It's too vague and it doesn't do enough for the poor
81
What does recent research about climate change indicate? 3
1. Antarctic is contributing more to rising sea levels than previously thought
2. Oceans are heating up 40% faster on average than UN estimates 5 years ago
3. Canada is warming at twice the average rate of the rest of the world.
82
In terms of policy responses to climate change, what should be taken into consideration?
Cautionary response would be sensible. Implications of being in the "fat tail" of the warming prediction are disastrous.
Relying on technology for a solution is risky.
Likely to reach a tipping point where existing state is unrecoverable.
83
What are the economic systems? Draw a graph
1. Market Capitalism (Private enterprise): Decentralized supply/demand decisions (competition) & Private Ownership
2. Monopoly capitalism: Centralized supply/demand decisions (planning) & Private Ownership
3. Market Socialism: Decentralized supply/demand decisions (competition) & Public Ownership
4. State-Directed Socialism: Centralized supply/demand decisions (planning) & Public Ownership
84
What kind of economy does China have?
Socialist market economy with Chinese characteristics. There is still a private sector, however it's mainly light industry.
85
What are the political systems?
- Democracy
- Republic
- Monarchy
- Communism
- Despotism
86
Define democracy
Citizens participate in the political system and elect leaders
87
Republic
Government is subject to the people and leaders can be recalled. Often democratic, but can also be a monarchy.
88
Monarchy
Monarch is the head of state, can be either constitutional or absolute
89
Communism
System based on ideology of communism, normally centrally planned economic system
90
Despotism
Rule by an individual (autocrat or dictatorship) or a group of individuals (oligarchy)
91
Positive vs Normative analysis
Positive: actual behaviour
Normative: prescriptive
92
Explain the limitations of normative analysis
Many governmental policies are hard to explain on the basis of normative analysis
Individual/ small group interests can outweigh normative justifications
93
What is government failure?
When a government acts in a way that is contrary to normative analysis prescribes
94
What do healthy democracies need?
1. An educated electorate to understand political, economic and social issues
2. A free press
3. An independent judiciary to ensure politicians are held accountable
95
A liberal democracy rests on what rights?
1. Property Rights that protect owners and investors from expropriation
2. Political Rights to ensure that groups that win electoral contests can assume power and choose policies
3. Civil Rights to guarantee equal treatment before the law and equal access to public services such as education
96
What is happening to many modern democracies? Explain
Move towards illiberalism and authoritarianism.
Citizens are cut off from knowledge about the activities of those who exercise real power because a lack of civil liberties
97
What is demarchy?
Government is created by randomly selected decision makers through a lottery. AKA policy juries, citizen juries & consensus conferences
98
What solutions does a demarchy offer?
Conventional representative democracies are subject to:
Manipulation by special interest groups
division between policymakers & passive, uninvolved and uniformed electorate.
99
What are the 2 forms of democratic decision making?
Direct (pure) democracy: involves direct voting by individual citizens on alternatives
Representative democracy: Delegates are elected and they are vested with the power to vote on alternatives and who represent the interests of individuals they represent
100
What are the downsides of direct democracies? 3
Expense: Costly to vote on every issue
Expertise: Voters may lack the expertise to judge some issues and it might be costly to inform them
Aggregate preference problem: voting does an imperfect job of revealing the aggregate preferences because it does not account for differences in the intensity of preferences
101
Those who vote "left" care about what?
Distributional fairness
102
Those who vote "right" care about
efficiency and procedural fairness
103
Explain the Median voter theory
That is a majority rule voting system the candidate/party most preferred by the median voter will be elected
Rests on the fact that
1. Candidates/parties may be placed along a one-dimensional spectrum
2. Voters' preferences are single-peaked, meaning voters have one alternative they prefer over the other
104
What is Hotelling's Theory of Political Parties?
Political parties will converge to the viewpoint of the median voter
105
Suppose that the policy space is [0, 1], and people are
uniformly distributed. With 2 candidates the equilibrium policy is at 1/2. What would happen if a 3rd party entered the previous political game?
The new equilibrium has all the candidates spaced out a bit
106
What are the electoral systems?
Majoritarian system: Need to have an absolute majority, >50% (alt voting & run-offs count)
Plurality: Need to win more votes than any other candidate
Proportional: % of popular vote represent # of elected candidates
107
What is the dominated winner paradox?
when they win the popular vote, but loose the election due to seatings
108
What ways can parties influence the electoral process?
Gerrymandering: manipulating the boundaries of an electoral constituency so as to favour one party
Voter Suppression: discouraging or preventing specific groups of people from voting
109
What are the advantages of the plurality system? 4
1. Encourages less, larger & more inclusive parties
2. Tends to produce majority governments
3. Maintains direct link between local reps and their consistency
4. Is simple to use and understand
110
What advantages does proportional rep have over plurality rep?
Reduced strategic voting and gives smaller parties more representation and is arguably more fair
111
Democratic voters may not have the ______ to make well informed judgements on every issue
expertise
112
Democratic voting does not convey _________________ of individual voters
the intensity of preference
113
While voting seems like a ‘fair’ process, different voting _____ can yield different
outcomes
schemes
114
The current plurality system in Canada tends to lead to______ governments but an under-representation of______ political parties
majority & minority
115
What is rent-seeking?
Also called transfer-seeking: Is the process of using resources to redistribute wealth from others rather than create new wealth
116
What are the consequences of transfer seeking?
1. There is a transfer of wealth to the rent-seeker
2. Resources consumed in rent-seeking are wasted
3. The policy induced by rent seeking usually has a pure waste associated with it (i.e. efficiency is compromised)
117
What are 5 examples of rent-seeking?
1. Theft & other economic crimes
2. Most litigation
3. War
4. Business Lobbying
5. Charity (usually seen as beneficial transfer-seeking)
118
What are the 2 types of special interest groups
Economic Interest groups (EIG): unions, industries, professions, regions
"Social" interest groups promote particular values or moral views IE MADD
119
Explain how EIG impact rent-seeking
Resources used by EIGs to obtain transfers from others is a transfer-seeking cost
This can lead to DWL of a policy (Brander 5.2) This is an additional cost
120
What is lobbying?
When an individual is paid to communicate with a public-office holder in an attempt to influence government policy
121
What are the principles of the lobbying act?
1. Free and open access to the government
2. Lobbying public office-holders is a legitimate activity
3. It's important for the public & public officers know who's attempting to influence gvmt
4. Registering lobbyists shouldn't impede free & open access to the gvmt
122
What are the 3 sources of government policy failure?
1. Unelected decision makers that pursue their own self-interests at the expense of the public's. Including dictators & bureaucrats
2. Voting outcomes depend on process and voting
3. Interest group activities may convey useful information but is transfer seeking
123
Democratic outcomes ____ be efficient or fair
may not
124
Practice Comparative Advantage Exercise
Lecture 10 page 3
Free trade/No free trade
125
What are the benefits of free trade?
There are gains through the specialization of production.
Efficient production and increased world output
Gains are maximized when countries focus on their comparative advantages
Free trade is beneficial even if there's an absolute advantage
126
What is an absolute advantage?
It's when a country has a higher productivity than other countries in the production of good X.
Higher productivity might come from higher labour productivity or better technology
127
What is a comparative advantage?
If the opportunity cost of producing good X is lower in a specific country than other countries.
Countries export the products that they are relatively good at producing
128
What is Ricardo's philosophy?
While a country may have an absolute advantage in the production of some good, when looking at the opportunity costs of each good
129
If the output for England is 4 for Wine & 4 for Cloth
Portugal 2 for Wine & 1 for Cloth
what is are their opportunity costs & who should import & export what
Opportunity cost of wine is 1 cloth for england & 1/2 cloth for Portugal.
Oppertunity cost for cloth is one for England and 2 for Portugal.
Therefore England should export cloth and import wine and vice versa for Portugal
130
Where do sources of competitive advantages come form?
A country that is relatively abundant in a factor of production will tend to have a comparative advantage in goods that use that factor intensively
131
What do countries do when they have more labour and less capital?
Export labour intensive goods and import capital intensive goods
132
What are Canada's competitive advantages?
timber, fresh water, hydroelectricity, natural gas, Uranium and potash
133
What are some normative reasons for restricting free trade?
1. One country may gain from interventionist trade policies at the expenses of others
2. This is essentially international transfer-seeking
134
What are the 5 major import-restricting policy-tools?
1. Tariffs: Taxes that are applied only to goods obtained from abroad
2. Quotas: Physical limits on quantity imported
3. Preferentual Government Procurement (Buy Canadian Policies)
4. Administrative Barriers: Forms and procedures at customs
5. Other import-discriminating regulations (disguised protection): Often involve safety of food or other consumer products
135
What does Ad Valorum mean?
as a percentage of price - used in tariffs
136
How are quotas implemented?
Licenses, often given away for free
137
How are procurements implemented?
When government favours domestic firms when awarding contracts.
EX buy America first in the US
138
What is the trade-off from free trade and administrative red tape?
Security - productivity trade-off
139
What are 8 Normative Rationales for Trade Policy
1. Raising revenue
2. Military, cultural or other non-economic objectives
3. Exploit monopoly power in export markets
4. Infant industry argument
5. Profit-Shifting
6. Domestic market failure (externalities)
7. Domestic redistribution
8. Retaliation vs foreign trade barriers
140
What are 2 questionable justifications for trade policy?
Employment Increases: Creating or protecting jobs (it's better to use monetary and fiscal policy)
Trade balance improvements: Reducing a trade deficit (better to use exchange rates)
141
What are 5 reasons to be skeptical of net employment creation due to protectionist trade policies?
1. Negative effects on downstream sectors
2. Jobs moved rather than created. Unemployed in wrong place or have wrong skills.
3. Export jobs reduce foreign retaliation
4. Export jobs reduced by exchange rate appreciation
5. Protection's deadweight-loss shrinks the overall economy
142
What is the response to trade-balancing?
Trade deficits are not bad in general.
There is a simple solution:
143
What are some advantages of free trade and globalisation?
1. Higher production through principle of comparative advantages
2. Access to larger markets increases demand and lowers costs through economies of scale
3. Cheaper access to inputs
4. Increased investment and knowledge sharing
5. Reduced risk of global warfare
144
What are some disadvantages of free trade and globalisation?
1. Lack of fairness. Losers are not compensated. Unemployment and increased inequality.
2. Increased power of multinational corporations.
They create monopsonies (one buyer many sellers) in labour markets
Seek out most favourable regulatory regimes
3. Standardisation leads to less product diversity and increase the barriers to entry
4. Increased susceptibility to economic shocks
145
How does raising revenue relate to trade policies?
Raising revenue works both on imports and exports:
1. Governments have legitimate fuctions that cost money
2. We want the MCF to be the same across all sources including tariffs
3. Collection cost of tariffs is quite low
4. 2-3% of government revenue is collected this way
146
Explain how exploiting monopoly power can be an effective export policy
If a country has a near monopoly on something IE Brazil and coffee, then they can exercise monopoly power and impose tariffs to generate a lot of revenue for the government.
However the producers don't get the revenue and get a reduction in quantity provided
147
Nascent industries might need protection while they mature
If a domestic producer lacks experience in a market their current costs will be high
If the domestic market is served by imports the domestic supplier gains no experience and their costs remain high
If the imports were kept out then the domestic prices would rise enough to make the domestic production profitable
With enough experience the domestic producer may be able to reduce costs and beat import prices without the help from protection
148
To practice profit shifting successfully what must the government do?
Must be well-informed and not be captured by industry interests
149
Why might "infants" never grow up with protectionist policies?
The promise of learning-by doing may not be realized
The domestic suppliers might never become competitive
150
"Infants" might have grown up without the _______________________ incurred by protection along the way
Dead-weight loss
151
Explain the profit shifting that comes from subsidies
Lecture 10 page
152
Explain the retaliation that comes from free trade
Lecture 10 page
