Homework 1 - 1. 2. 3. 4. Homework1 Economics4545...

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Unformatted text preview: 1. 2. 3. 4. Homework1 Economics4545 DueMondaySeptember8 Explaintheconceptoftheindirectutilityfunctionandhowitcanbeusedto definewillingnesstopayforanincreaseinenvironmentalgoodsor willingnesstoacceptforadecreaseinenvironmentalgoods. DefineaParetoimprovement.DefineaPotentialParetoimprovement.How dotheseconceptsrelatetobenefitcostanalysis? ThestateofMinnesotaisconsideringpurchasingbufferlandintheLeSueur riverbasininordertoimprovewaterquality.Theupfrontcostofpurchasing thelandis$80million.Astudywasconducedthatfoundbenefitsof$5 millionperyearoncethewaterqualityhasimproved(theyearafter purchase).Calculatethepresentvalueofbenefitsfor30yearsofbenefits (startingoneyearout)usingr=.05.Comparetothecostsanddetermine whetherthispassesthebenefitcosttest.Repeatusingr=.02.Doyour answerschangeifweconsideraninfinitestreamofbenefits(still$5M/year) asopposedtoonly30years? ThetownofSanSaba,Texasisconsideringthecreationofaparkalongthe SanSabaRiverthatrunsthroughtown.Thecitycouncilknowsthatmany peoplevalueaparkofsomesize,butthequestionishowmanylinearfeetof parktoprovidealongtheRiver.Themarginalvalue/inversedemandcurve formilesofnewparkalongtheriverforeveryoneintownisgivenbyP= 2000FwhereFisfeetofpark.Theconstantmarginalcostforproviding afootofparkis$1500.Graphthemarginalvaluecurveandthemarginal costcurve.Explainhowtofind(andfind)howmanyfeetofparkshouldbe provided.Wouldapolicytoprovide500feetpassabenefitcosttest?How about2500feet?Basedontheseexamples,contrastoptimalprovisionwith passingabenefitcosttest. ...
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This note was uploaded on 12/11/2008 for the course ECON 4545 taught by Professor Edwardmorey during the Fall '08 term at Colorado.

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