In the figure below, we described how a policymaker representing a uniform group of identical citizens chooses the optimal amount of abatement.

1.1.Draw the indifference curves of the policymaker if she were to represent two different groups of citizens (again, we assume that all citizens in each group are identical, and the marginal utility of consumption and environmental quality are both constant). In the first group, citizens care more about environmental quality than consumption, and in the other group, citizens care more about consumption of goods and services. Explain why the optimal level of abatement costs will differ across groups.

1.2.Now consider the example in the text of the abatement of global greenhouse gases. What are the main simplifications in the model that might lead the policy maker who uses this model to ignore important aspects of the problem of global greenhouse gas abatement?

In reality, there is uncertainty about the effectiveness of abatement expenditure and hence how costly abatement of environmental damage will be.

1.3.On a new diagram, draw the feasible consumption frontier based on an optimistic assessment of the costs of abatement.

1.4.Now draw the feasible consumption frontier based on a pessimistic assessment of the costs of abatement on the same diagram.

1.5.By adding the policymaker's indifference curves to your diagram in each case (assuming all citizens are identical), show how actual environmental quality chosen by the policymaker will differ, even if preferences are the same, depending on whether costs of abatement are assessed optimistically or pessimistically.