Econs 430 Study Guide - Final Exam

Climate Change: Greenhouse gasses in atmosphere. Solar energy is absorbed, reflected (infrared radiation) but GHG trap heat. Issue: Man made greenhouse gasses affecting temperature. Why exists: CO2 acts as a negative externality. There is a commons issue with the atmosphere (inadequate property rights). Supply & demand: Supply increases – searching for new pools of resources and new tech makes it easier and cheaper to extract. Impacts: Benefits: Heating costs less, agricultural production patterns change. Harms: Sea levels increasing (flooding), cooling costs increase (china/india), increase in insects (affects agriculture/humans spread of disease), health (insects, hot – heat stroke), agriculture production, storms (warmer weather = more severe storms), decrease in biodiversity (polar bear trying to get on ice). Solution: 1997 Kyoto Protocol Special Interests: Special interest groups have extreme positions because they engage rationally ignorant, ask for more in order to get where they want (negotiations), and debating other group. Economic Theory of Regulation: Which regulation gets picked – how we end up with the regulation we do. A policy maker will set the regulation. He will get favors (in the form of support/$$$/things that get them re-elected). He decides which policy to enact by choosing the largest bundle of favors, and that party gets their regulation elected. Special interest groups offer support, $$$, votes. Bootleggers and Baptists: Baptists – make it illegal to sell alcohol on Sundays. Bootleggers – love it because they have monopoly on Sundays. Together they form coalition – Baptists provide morale justification for policy, bootleggers can provide money. Related to global warming because: In favor of Kyoto: Baptists – moral – greenpeace (environmentalists), biofuels (supports agriculture jobs). Bootleggers – profit – alternative energy companies. Against Kyoto: Baptists – moral – unions (coal miners – jobs), Bootleggers – profit – oil