a)Use the cap and trade model to explain in technical detail the two outcomes of abatement using CO₂ permits: the 50:50 split and the cap and trade equilibrium. In your answer, show the gains from trade between the two firms.

b)Describe the way a cap and trade policy works to someone who has not studied economics. How would you respond to their concerns that the policy is likely to be ineffective or unfair to producers?

c)Explain the endogenous processes at work that led up to the recent US housing market bubble. Use relevant demand and supply diagrams to aid your answer and show how there is an unstable equilibrium.

d) Explain the endogenous processes at work of the speculative bubble crash from the US subprime crisis. Use relevant demand and supply diagrams to aid your answer.