Question # 5: Power Plus Battery Company (“PPBC”) has a production plant located in Tampa, Florida. PPBC manufactures batteries for motor vehicles. PPBC has 200 employees and sells its batteries to customers in twenty-five different states in the United States. The Occupational Safety and Health Administration (“OHSA”) is a federal administrative agency that has the authority to establish safety standards, pursuant to the authority delegated to it by the United States Congress in the Occupational Safety and Health Act. These safety standards, also known as safety rules or regulations, apply to different industrial operations that have at least fifty (50) employees and are engaged in interstate commerce. OSHA proposes a new safety standard governing the handling of certain acids in the workplace. The proposed safety standard includes acids that PPBC uses in its production processes. After reviewing the proposed rule, PPBC concludes that compliance with the proposed rule will substantially increase its production costs and the proposed rule will not significantly increase worker safety. PPBC sends a letter to OSHA stating its objections and concerns to the new rule. Enclosed with the letter are independent research reports and other materials that support PPBC’s objections to the proposed rule. What procedures must OSHA follow when it adopts a new safety standard such as this one? What obligation does OSHA have to consider the objections and the materials submitted by PPBC? What options does OSHA have regarding the proposed rule? How does OSHA announce its final decision on the new rule? Once the new rule has been adopted, what source may interested parties use to find the final version of the new rule?

Imagine you’re named an Economic Advisor to the president of a very poor and backward country (Sandokistan). The President asks your advice on where they should use their very limited resources so that they can help escape the poverty trap. Should they invest in existing, traditional tools (think tractors, computers, known manufacturing techniques) or should they invest in cutting edge research where they might become a market leader? Please explain why you selected the option you did. Conversely, why didn’t you select the other option? How does the option picked fit with the theory learned this chapter?

Note: In a world of trade offs, you can pick only one. I won’t accept an answer that says they are both important. This is a topic where near universal agreement exists on “best strategy” as outlined in this chapter.

Bonus: Economic theory suggests that the investment would get the greatest return where capital is scarce. After all, adding another tractor to a field that already has modern technology isn’t likely to increase output, whereas adding a tractor to a location that is currently capital starved would have the potential to add a substantially more to output. This means we would expect capital to move from “capital rich” regions to “capital poor” regions when all else is equal (Ceteris Paribus). This is NOT what we see in the real world (and it is known as the “Lucas Paradox”). Without researching, why do you suppose we actually observe capital moving from poor to rich rather than from rich to poor as the theory would suggest?

The following table provides information on emissions, transfer coefficients and the marginal costs of emissions reduction for a non-uniformly mixed pollutant from three different sources.

1. Complete the table below, adding the missing information for concentration units reduced and the marginal cost of concentration reduction for each source. Please write down any formulae you use.

1. Suppose the goal of the regulator is to reduce total concentrations at the receptor by 7.25 units. What is the optimal concentration reduction from each source in order to achieve the total required reductions? Show how you arrive at your answer.

1. What is the total abatement cost of emission reduction for each source? What is the economy-wide total abatement cost of achieving the target?

1. What is the optimal tax rate for each source in order to achieve the required reductions? Show how you arrive at your answer.

1. Does your answer in part c) make sense? Explain why.

1. How is your solution to this problem different from a typical solution in a uniformly mixed pollutant problem?

1. Suppose that the regulator set a uniform tax of $3 per unit of emissions. How many emissions units would each source reduce under this policy? Would this policy achieve the target concentration reduction? Clearly show how you arrive at your answer.

1. As an economist, which policy would you recommend: the non-uniform tax rate identified in part (d) or the uniform tax policy from part (g)? Justify your answer.

400-600 words

Answer the question

The board of directors at AutoEdge is actively discussing several options to address flagging revenue. One option continues to surface during each board meeting; that is, relocating the manufacturing operation back to the United States. Longtime Chief Financial Officer, Ingrid Adams, leads the group that is in favor of this option.

Ingrid Adams approaches you in the company break room.

“Hello,” she says. “I’m glad I saw you.”

“Hi,” you say. “What can I do for you?”

“I have a question about economics,” she says. “I think you can help me explain something to some shareholders on the board.”

“Economics! My favorite subject,” you say. “What’s your question?”

“If AutoEdge decided to increase its prices and return to the United States,” she says, “how would this action affect consumer demand? I want to know your opinion about elasticity.”

“Sure,” you say. “So you want to know if the elasticity for auto parts is considered to be relatively inelastic, relatively elastic, unitary elastic, perfectly elastic, or perfectly inelastic. Right?”

“Exactly,” she says.

“I have an opinion,” you say. “Do you want to talk about it now, or do you want something in writing?”

“Something in writing would be best,” she says. “Would you explain your opinion so that I can respond to questions from other members of the board, too?”

“I’d be glad to,” you say. “I’ll put something together this afternoon and get it to you before I leave today. Is that soon enough?”

“Perfect,” she says. “Thanks for your help.”

Respo

In your own words please describe and explain the contributions of Adam Smith to the science of economics. 200 words

In your own words please discuss the pros and cons of his model (Pure Capitalism). 150 words

Note: Make sure to leave 1 blank line between each answer

• Use Times New Roman, 12pt font, double-spaced, 1-inch margins.
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• Use your own wording.
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