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Friday, April 20, 2007

Microeconomics Quiz of the Week

From ProfessorJournal.com:
The article reports on Denmark's successful 30-year effort to keep its energy consumption in check. "Through a wide variety of government-driven initiatives, this small northern European country has overcome one thorny challenge of global warming: how to dramatically reduce energy consumption while maintaining a solid growth rate and low unemployment. The downside is higher taxes and costs for businesses and consumers." The article offers a good series of anecdotes about policies and technologies used to reduce energy consumption. The article also offers data about the cost of the programs. For example, A Dane buying a new car must pay a registration fee of approximately 105% of the car's value, plus additional taxes on fuel. Danish companies pay 43% more per megawatt hour of electricity than companies in the U.S., 24% more than in France and 19% more than in England. One interesting comment in the article, "You can't just sit back and wait for market forces to do this for you."

QUESTIONS:
1.) Interpret the statement: "You can't just sit back and wait for market forces to do this for you." What does the statement imply about the market's ability to efficiently allocate goods that have negative externalities?

2.) Why does it require government policies to spur developers to build homes with thick insulation and for consumers to purchase energy-efficient appliances?

3.) Why have U.S. policy makers and businesses resisted the type of intervention and regulation behind Denmark's environmental successes?


Reviewed By: James Dearden, Lehigh University

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