Department UNC-Wilmington of Economics and Finance
PLS 544 Dr. Chris Dumas
Environmental Applications of Demand and Supply -- Example Problems 1) Suppose that a consumer's demand for regular notebook paper, let's call it product Q, is given by PQ = 50 - 2Q, where PQ is the price per unit of Q and Q is the quantity of product Q purchased by the consumer. If PQ is equal to $10 per unit, calculate the quantity of Q purchased, the consumer's total benefit, total expenditure and consumer surplus. Suppose that the consumer's demand for recycled notebook paper, let's call it product R, is given by PR = 120 - 6R, where PR is the price per unit of R and R is the quantity of product R purchased by the consumer. If PR is equal to $12 per unit, calculate the quantity of R purchased, the consumer's total benefit, total expenditure and consumer surplus. Suppose someone says: "Because consumers pay a higher price per unit of recycled paper (compared with regular paper), and because the higher price forces consumer to buy fewer units, and because consumers' total expenditure is larger for those fewer units that they are able to buy, we shouldn't even make recycled paper an option for consumers; they are clearly better off without it." Critique this statement. (Hint: You might want to compare consumer surplus values.) 2) Suppose you determine through the use of surveys and focus groups that the average SeeAira Club member's demand for hiking trips in wilderness areas is P = $450 - 200*Q, where Q is number of hiking trips per year. Suppose there are 50,000 SeeAira Club members. What is the market demand of SeeAira Club members for hiking trips in wilderness areas? Suppose enough wilderness area is set aside to accommodate 10,000 hiking trips per year? Suppose that hikers are allowed to hike in the wilderness area for free. What is the monetary value of the total benefit enjoyed by the SeeAira hikers? 3) Suppose the most that a birdwatcher would pay to watch birds at the local wildlife preserve is $25. Suppose his marginal benefit falls by $2 for each trip taken to the preserve per year. If access to the wildlife preserve is free, how many trips per year will the birdwatcher make, and what is the birdwatcher's total benefit associated with free access to the wildlife preserve? 4) Suppose the choke price for the typical saltwater sportfisherperson embarking from Carolina Beach, NC, is $4000 per trip per year. The additional benefit derived from each additional trip per year falls by $500 for each trip taken. What is the typical saltwater sportfisherperson's demand curve equation for saltwater sportfishing trips embarking from Carolina Beach? If the price per trip is $250, approximately how many trips will be taken per year by the typical saltwater sportfisherperson? What will be the typical sportfisherperson's total expenditure per year on all trips together, and what will be the person's consumer surplus from all these trips? If saltwater sportfishing is suddenly banned for a year due to mercury pollution in the water, do the total expenditures made on the trips measure the full value of the economic loss? How much economic value does the sportfisherperson lose beyond the value of total expenditures? 5) Suppose the typical price of a sportfishing trip is $150 in Myrtle Beach, SC. Suppose the most that anyone would pay for a Myrtle Beach sportfishing trip is $5000, rain or shine. Suppose that marginal benefits sportfishing per trip fall off roughly linearly as more trips are taken. Suppose that on a typical sunny day 750 trips are taken at a price of $150 each. How much consumer surplus is created by those trips? On a rainy day, suppose that only 200 trips are taken at a discounted price of $100 each. How much consumer surplus is created on rainy days. How does weather (an important parameter) affect the demand curve for trips? Suppose that under normal climate conditions, 70% of the days in a year are sunny, and 30% are rainy. However, suppose that atmospheric scientists predict that only 50% of the days will be sunny should global warming occur, and 50% of the days will be rainy. Estimate the potential impact of global warming on the value fisherpersons receive from Myrtle Beach sportfishing.
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UNC-Wilmington Department of Economics and Finance
PLS 544 Dr. Chris Dumas
6) Suppose that a producer's supply curve for fuel-efficient hybrid automobiles, product Q, is given by PQ = 10,000 + 0.2*Q, where PQ is the price per unit of Q sold. If PQ is equal to $18,000, calculate Q, the producer's total cost, total revenue, variable cost, and producer surplus. If the producer's fixed costs are $7 million, calculate the producer's profit. If there are 6 producers just like the producer described above (including the producer described above), calculate the market supply equation for hybrid autos. 7) Suppose that the marginal cost of producing organic wild rice on the NativesAreUs native American reservation in upstate Wisconsin is given by P = 10 + (c/100) * Q, where P is the market price of organic wild rice in dollars per ton, Q is tons of organic wild rice produced per year, and "c" is a parameter that affects marginal costs (in particular, c is the cost of canoe, which affects the marginal cost of rice production because native Americans use canoes to harvest the wild rice in upstate Wisconsin). Suppose the market price for organic wild rice is $300 per ton. Suppose that the price of a canoe, c, is $80. If NativesAreUs maximize their profits...