PROBLEM 1

A) Street light is an example of a good that has light pollution as an externality, when it is
consumed. It is a negative externality, falling into common individuals, harming their health.

𝑄
B) 𝑃𝐷 = 10 − 9𝑄 = 𝑀𝐵𝑃 = 𝑀𝐵𝑆 , 𝑃 𝑆 = 5 ∗ 4 = 𝑀𝐶𝑃 , 𝑀𝐶𝐸 = 0.5𝑄

𝑄
𝑀𝐶𝑆 = 𝑀𝐶𝑃 + 𝑀𝐶𝐸  𝑀𝐶𝑆 = 5 ∗ 4 + 0.5𝑄 𝑀𝐶𝑆 = 1,75𝑄
PRICE

DWL

QUANTITY

𝑄
C) 10 − 9𝑄 = 5 ∗
4
 𝑄 = 0,9756 , 𝑃 = 1,2195

A: When there is no correction for the externality the optimal quantity is 0,9756 and
the optimal price is 1,2195.

D) 𝑀𝐶𝑆 = 𝑀𝐵𝑆  1,75𝑄 = 10 − 9𝑄  𝑄 = 0,93 , 𝑃 = 1,6275

A: At the socially optimal level, the quantity of the good that would be consumed is
0,93 and the price 1,6275.

E) The deadweight loss is the loss of total welfare or the social surplus, in this case, due to
externality. That can be seen in the graph in alien b). The total amount of loss is
0.0111, which is not that much.

F) An example of an optimal solution, for this specific externality problem, would be to

regulate the intensity of light reflation, reducing it. In that way, the light pollution
would decrease, thus, DWL would also fall. This would be better than, for example,
implementing taxes, because in this way we are dealing directly and not indirectly with
the problem itself.
PROBLEM 2

A) In Portugal, the voting system is closed lists. You can only vote once in the European
elections, that is, you can only give a preferential vote to one of the candidates.

B) Yes, citizens who live abroad can vote in these elections.

If you live in another EU country and wish to vote for the candidates who are in the
elections in your country of origin, you should check if you are still enrolled in the
census or if you need to re-enroll.
If you want to take part in European elections in the country where you live, you
should ask to be entered in the census books of that country.

C) In Portugal there is no threshold for party entry.

D) There isn’t enough information available about this topic.

E) After the Brexit, MEP numbers will be cut from 751 to 705; 46 of the 73 UK seats freed
up by Brexit will available for possible EU enlargement-, and also 27 UK seats will be
shared out among 14 under-represented EU countries.
In Portugal, there are going to be assigned 21 mandates, which is the same from the
current state.

F) The method used for distributing mandates to candidates is by proportional

representation using the d'Hondt method, which is known to benefit leading parties.
Deputies are elected in a single constituency, corresponding to the entire national
territory. There are some modifications to the quotients used, as it can be seen in the
following tables.
PROBLEM 3

A) I would not achieve a Pareto improvement because some people, who value it the
most, would end up worse off.

B) Critics of the Contingent Valuation method have recently argued, on the basis of
several empirical studies, that the Contingent Valuation method is incapable of
demonstrating scope. As so, the problem is that it is too unreliable to obtain useful
information for natural resource damage assessments.

C) An example of a specific merit good could be education, because it is viewed by the

society as deserving public finance. In my opinion, the government should interfere in
the market for this good because consumption should not depend primarily on the
ability to pay for the good or service.

D) The Coase Theorem, stated simply, is the idea that the most efficient way to use
resources is to assign ownership. However, in the topic of current activities that cause
climate change, no one is willing to take responsibility for the consequences of
pollution, as so, there is no ownership.