sound economic intuition

Write to address all the questions posted, providing sound economic intuition and discussion for both one and two. each one has to be answerd in  a well articled paragrapgh.

1) We discussed biofuel production from corn as an application of the perfect competition model.  Growing crops that provide biofuels without significantly affecting food production requires a greater area of cropland. Because agriculture and fuels are internationally traded, the increase in cropland may not occur where the biofuels are used. For instance, more biofuels in the United States may reduce soybean production in the United States, which could lead to more soybean production in Brazil, possibly on land that previously was rainforest. European demand for biodiesel fuel from palm oil causes increased planting of palm trees, which again may occur on land that was previously rainforest. Is there an externality associated with the production of biofuels? Are the effects in tropical countries too remote to be allowed to affect encouragement of biofuels?

2)Consider the following quote from Ch. 19 in Nordhaus’ book Climate Casino: “The main insight is that people must have economic incentives to change their activities in ways that lower emissions of CO2 and other greenhouse gases.  The best way to accomplish this is by putting a price on CO2 emissions.  This will in turn raise the relative prices of carbon-intensive goods and lower the relative prices of carbon-free goods, thereby bending down the trend of CO2 emissions.” (p.221). Use your economic intuition from throughout this course to explain this quote, drawing on the supply-and-demand model, externalities, and/or the model of firms in a competitive market.  Providing an example industry or good would be useful in your discussion.


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