Chapter 3 Objectives:• Show how economists conceptualize individual preferences in words, graphs, and math.• Describe the ‘preference relation,’ and show its use for predicting individual choice.•...

Chapter 3 Objectives:• Show how economists conceptualize individual preferences in words, graphs, and math.• Describe the ‘preference relation,’ and show its use for predicting individual choice.• Investigate selected characteristics of the preference relation.• Describe examples of particular preference relations (utility functions) widely used for empirical work thataddress policy debates.ImplementationOngoing debates rage over global climate change, its costs, and desired mitigation and adaptation actions. Theproblem is that different people have different preferences for greenhouse gas reductions, because climateimpacts to an individual vary by geography, health, and economic conditions.Suppose the typical resident in the western world (W) has different preferences from one in the non-westernworld (N) for greenhouse gas mitigation. A typical W’s utility function is summarized as UW = 6X1 + 0.5X2 (lineartradeoff) while a typical N’s utility function is UN = X1 0.2 X 2 0.8 (a nonlinear tradeoff). The term X1 is quantity ofclimate mitigation, and the term X2 is income.2 billion live in W and 5 billion in N. See http://en.wikipedia.org/wiki/World_population, The terms X1 =greenhouse gas emission reductions from 2016 levels in billion tons per year; X2 = disposable income in 1000s ofdollars per year per capita. W’s per capita income is 15 (thousand)/year; N’s is 4 (thousand)/year. Each likesmore climate mitigation (more X1) and more income (more X2).Global emissions 7 billion tons per year - http://www.eia.doe.gov/oiaf/1605/ggccebro/chapter1.html. The UNClimate Change meetings this year are in Glascow, Scotland, described athttps://sdg.iisd.org/events/2020-un-climate-change-conference-unfccc-cop-26/Suppose 3 proposed policies face the 2021 meetings delegates for reducing greenhouse gasses (GHG). They are:Policy GHG reduction (billions tons/yr) Tax Charged ($1000 per year)1 0.15 12 0.20 23 0.35 3A. Sketch the typical person’s indifference curves in both W and N for greenhouse gas reductionsand disposable income (income minus taxes) for each of the three policies above.B. What is the total utility for W and N for each policy?C. What is total worldwide utility for each policy?D. Which policy produces the largest worldwide utility?E. Explain verbally (not mathematically) in politician-friendly language which policy yourecommend and why? Be sure to include a discussion of both economic efficiency as well as