Reference no: EM133274722

Short essay:

1. In their article "Eye on the Future," Lawrence Goulder and Robert Stavins argue that an environmental project with a positive Present Value of Net Benefits (PVNB) will result in a "potential Pareto improvement." Define what is meant by PVNB, and a "potential Pareto improvement." Discuss the strengths and weaknesses of using the PVNB to decide on whether or not an environmental project should be undertaken.

2. One criticism of using pollution taxes to put a price on pollution is that it requires polluters to pay abatement costs if they choose to clean up some of their pollution and to pay for each unit of emissions they do not abate. This is potentially very expensive for firms and consumers because it increases production costs and will be reflected in output prices. How should an economist respond to this criticism of pollution taxes? Include a discussion of the pros and cons of pollution taxes in your answer.