Environmental Economics Discussion Assignment.
Environmental Economics Discussion Assignment.
1 Negative Externality
Suppose that the private market for widgets is characterized by the following supply and inverse demand functions:
D : P = 10−Q
S : P = Q
1. Graph these functions in the graph paper below. Locate the private market equilibrium price and quantity.Environmental Economics Discussion Assignment.
2. Now suppose that the EPA calculates that the marginal external cost of widget production is characterized by: MD = $2. Graph the market with the externality and locate the the socially ecient equilibrium. How much dead weight loss was produced by the private market.
3. Now suppose that the EPA revises their MEC estimate to: MD = Q. Graph the market with the externality and locate the socially ecient equilibrium. Compare this with the outcome from part 2.
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3. Now suppose that the EPA revises their MEC estimate to: MD = Q. Graph the market with the externality and locate the socially efficient equilibrium. Compare this with the outcome from part 2.
2 Public Goods
Suppose that the private market demand for public-access park acres in the town of Yarbroughville (Q) is characterized by the following two types of voters (old and young):
Dold : Q = 10−P
Dyoung : Q = 8−P Further, assume that the marginal cost of supplying acres of public-access park is:
MC : Q = 0.25P
1. If park acres would be determined by a private market, how many acres are bought and sold? Environmental Economics Discussion Assignment.To determine this, plot the two demand curves separately, and then sum them horizontally to plot a market demand curve. Then nd the private market equilibrium.
2. Instead, assume that park acres are determined by a public vote based on willingness to pay. How many acres of public-access park are socially efficient? To determine this, again graph the two demand curves separately and then sum them vertically to plot a public demand curve. Now locate the socially ecient equilibrium.
3 Cost-Benefit Analysis
Pace University is deciding between two projects.
A) Full HVAC system overhaul, which costs $1 million and will reduce general energy cost to the university of $300,000 per year. There are no costs beyond period 0.
B) Placing a wind farm on top of 1 Place Plaza, which costs $10 million and will reduce general energy cost to the university of $3 million per year. There are $500 thousand per year of upkeep cost for the windmills.
1. Assuming a discount rate of 5% and time periods as years, what is the NPV of each project after 5 years.
2. Answer part 1 again, but assume a discount rate of 10% instead.
3. Comment on the values calculated in parts 1 and 2.Environmental Economics Discussion Assignment.
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