1. Explain the intuition behind why market-based instruments (emissions taxes and tradeable permits) are cost-effective, while uniform standards generally are not.

2. The Coase Theorem suggests that, under some conditions, private bargaining will resolve negative externalities. Does this mean that pollution problems should beleft for the market to solve? Why or why not? Discuss this from the perspective of efficiency, as well as equity.

3. Why has the price of carbon dioxide emissions credits on the voluntary Chicago Climate Exchange been so much lower than the price of carbon dioxide emissions credits on the European Unions Emissions Trading System? What general conclu-sions can you draw from these contrasting examples?

4. How would a landing tax in a fishery work to reduce the amount of fish caught?Can you illustrate this effect in our graphical (mathematical) model of a fishery?

5. The 1977 Clean Air Act Amendments required new electric power plants to installscrubbers in order to remove sulfur dioxide emissions. Such an approach is often called a "technology-forcing" approach, and is typically promoted as a way of ensuring that polluters install the most advanced or best available abatement technology. From an economic perspective, what kind of incentive does such a policy providefor the development and adoption of new technologies?

6. Much of the political debate surrounding the use of emissions trading concerns the allocation of the pollution allowances in particular, whether to auction off the allowances, or give them away for free. Explain why the method of allocation doesnot affect how much pollution firms end up controlling, assuming that transactions costs are low. What do you think would happen if transactions costs were high?