Part I: Short Answers
1. (6 points) Tol (2018) describes two important conclusions from his review of climate
change impacts estimates. Briefly describe them, distinguishing between short- and
long-term where necessary.
1. ______________________________________________________________________
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2. ______________________________________________________________________
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2. (6 points) There are three main types of government action: 1) Influence private
production; 2) Provide social insurance and safety nets; 3) Produce public goods and
services. Provide an example that illustrates each type of potential government action
a. ______________________________________________________________________
______________________________________________________________________
b. ______________________________________________________________________
______________________________________________________________________
c. ______________________________________________________________________
______________________________________________________________________
Part II: Longer Answers
3. (12 points) Policy Scenario I
In the following short-run policy scenarios, explain how the policy described might cause a
shift of the supply and/or the demand curve in the market specified, using terms like
“outward/inward” or “up/down.”
Background: Currently, the safety, purity and efficacy of products known as ‘nutritional
supplements’ (e.g. vitamins, minerals, proteins etc.) are only loosely regulated in the U.S.
Scenario 1: In response to concerns for public safety, Congress passes strict new legislation
and provides funding for enforcement, including a ban on the import of any such products
from outside the country (including those sold online or in person).
Scenario 2: Strict new efficacy, safety and labelling standards for products manufactured in
the U.S. (similar to those applied to prescription only or over-the-counter medicines).
Policy Scenario II (12 points)
Some evidence suggests that firefighters may experience significantly higher lifetime risks of
certain cancers. This may be because they are frequently exposed to carcinogens in the
form of smoke from burning materials, particularly those containing plastics or other
manmade materials (externality). Workmen’s Compensation insurance claims to cover
job-related disability of this sort are often denied because individual cases cannot be
definitively tied to on-the-job conditions. Young people training for and entering the trade are
generally unaware of this potential hazard (information asymmetry) .
Describe at least 3 market failures underlying in the problems described above (information
asymmetry, externalities etc.), and describe policy approaches that might be appropriately
applied to solve each market failure you identify.