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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View Full DocumentLet’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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 Spring '07
 POE,G.

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