Week 3

Question 1

SDGs

Answer 1

Target setting worldwide: It is important in globalized world for coordinate actions

Very broad scope: SDGs encompasses a lot of aspects

Economics has limits: economic tools cannot address the multidimensional challenges of sustainbility

Question 2

Target setting in SDG

Answer 2

1. Clear Rules for Optimal Outcomes
2. Efficiency: Pareto Optimality
3. No Unique Solution (utility possibility frontier)
4. Social Welfare Function (SWF) but pareto criterion is enough

Question 3

Market efficiency

Answer 3

Market mechanisms balance supply and demand, achieving an efficient allocation of resources at the equilibrium price and quantity.

• Ensures cost minimization through competitive pricing.
• Facilitates profit maximization by balancing supply and demand.

Question 4

SDG target not equal to economic target

Answer 4

Economics vs ethics should be considered

Question 5

Target SDG not always precise

Answer 5

Economics can help to make it more precise

Question 6

Unregulated market and how to control it

Answer 6

Tend to overproduce (Y0>Y∗) as they do not account for external costs, leading to inefficiencies and social harm.

Encourages producers to reduce production to the socially optimal level (Y∗) or impose taxes

Question 7

Requirement for efficient market outcome but SDG is not one but why?

Answer 7

1. Market must exist: carbon markets for CO2 do not exist
2. Market is perfectly competitive: in agricultural sector, there is no perfect competition
3. Utility and production function are well behaved: nature is not behaving itself as a normal utility function. It has discontinuities
4. Private and not public goods: peace is a public good
5. No externalities: environmental issues and inequalities are considered as externalities

Question 8

Market outcomes are not always acceptable if requirements are fulfilled

Answer 8

If not acceptable, target setting is not equal to pareto and policies are necessary

Question 9

Solutions to market problems: COASE

Answer 9

1. Coase → create property rights and market finds its optimal solution by negotiation

(CO2 permits, abolishment of slavery and labor rights)

However it might lead to externalities such as costly bargain, imperect market and unacceptable outcomes

Question 10

Solutions to market problems: Taxation

Answer 10

Set optimal tax that will adjust production to socially optimal

However, implementing such taxes unilaterally may place countries at a competitive disadvantage in the global market.

Question 11

Other solutions

Answer 11

1. Subsidies
   Purpose: Make better solutions cheaper and more attractive for producers and consumers.
2. Command & Control
   Approach: Governments set specific limits or regulations to control negative externalities.
3. Innovation Stimulation
   Goal: Encourage the development of new technologies to solve market inefficiencies.
4. information (transparency)
5. mergers: internalizing costs and benefits
6. international treaties: global market needs global rules, countries may not want to solve problems / cannot solve themselves