Here are notes that will let you check your answers to the final exam from 2004. Please keep in mind that these are just the bottom line results and are NOT not complete solutions that would be acceptable as answers on an actual exam.
(a) uncertainty plus absence of a threshold means that a tax policy would be better than tradable permits.
(b) proven reserves=7,000; identified subeconomic=14,000; undiscovered economic=63,000; undiscovered subeconomic=126,000; rise in price to $36, reduction in MEC of grades D & E to below $27; discovery of a grade A, B or C deposit of size 7,000.
(a) Q total = 90; Q1 = 60; Q2 = 30.
(b) Total number of permits = 410; price of a permit = $1800; permits to source 1 = 147.5; permits to source 2 = 262.5; source 1 ends up selling 7.5 permits to source 2; overall cost to each firm would be $40,500 including abatement and permit transactions.
(a) 2150 visits.
(b) A = 4; B = 0.0093; value of the park is $8,600.
(c) Understate: does not include non-use values such as option demand and existence value.
(a) Quantities: 230, 220, 200; prices: 40, 60, 100; royalties and MSS: 20, 40, 80. Methane hydrates would not be used because the cost is higher than the price in every period. Market allocation will be efficient: arbitrage ensures that the royalty rises at the interest rate and hence MSS rises at the interest rate as well.
(b) Royalty in last period drops to $80 - $20 = $60; new royalties become: 15, 30, 60; new prices: 35, 50, 80.; new quantities: 232.5, 225, 210.