HW 1 A - SOLUTIONS AEM 250 Environmental and Resource...

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SOLUTIONS AEM 250: Environmental and Resource Economics Homework 1 Distributed: Feb 2, 2007, Due by end of class on Feb. 9, 2007 10 Points (2.5 points per question). All graphs should be clearly labeled and all other work legible. If we are unable to interpret your work, you will receive a lower score. 1. This is a subjective question. Please see the accompanying PDF file for examples of exemplary answers to this question. (Available in a few days.) 2. a. Graph the demand for visits to Mono Lake. Note that “demand” is formally quantity as a function of price. However, you may find it easier (as I did in creating the graph below) to map price as a function of quantity, which is technically called the inverse demand or the marginal benefit function. Demand for Visits to Mono Lake 0 10 20 30 40 50 60 70 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 Visits "Price" b. Derive an algebraic equation for the demand curve you graphed. Note, that The linear formula I gave you (Visits = intercept – slope*Price) is the demand equation, while the graph (which is the marginal benefits function) can be obtained as follows. By inspection of the above graph, the “visits” intercept is 180,000. The “slope” in this case is the (decrease in visits)/(increase in price per visit).
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Let’s examine the movement in price from $0 to $10 (i.e. change in price = $10). For this change the quantity demanded falls from 180,000 to 150,000 visits. Hence, our slope will be (-)30,000/10 = (-)3,000. That is, for every $1 increase in price, visits will decline by 3,000. As a check,
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HW 1 A - SOLUTIONS AEM 250 Environmental and Resource...

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