Environmental Economics — Prelims Strategy

Prelims Strategy

Identify the missing marginal consequence in an externality question. A factory's wage bill is normally a private cost, while uncompensated harm to downstream users is external. The simple tax benchmark uses the marginal external harm, not an unrelated average of past damage.

For abatement problems, add the stated marginal costs of the selected reductions. A's first and second tonnes at ₹100 and ₹150 cost ₹250, not ₹200. Compare that with the target and alternatives, and retain the assumption that reductions have equivalent environmental effects wherever they occur.

Keep tax and cap variables separate: a tax specifies price; a cap specifies covered quantity in the basic comparison. Free allocation does not remove the opportunity cost of a tradable permit. For resource classification, examine rivalry independently of exclusion or ownership. In bargaining questions, clear rights and technical feasibility are useful conditions but do not prove that many parties can negotiate and enforce an agreement at acceptable cost.