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Unformatted text preview: EEP 101/ECON 125 Prof. Zilberman GSIs: Brian Gross, Jenny I t Problem Set 4 This problem set due on May 5; however if you turn in your problem set May 1st by 5pm to your GSI (either of our mailboxes in Giannini is ne), it will be graded and returned to you in the nal section. Otherwise it be available about 1 week before the nal exam. Problem 1 - Water Economics The government of Zilberopia allocates 1000 acres of homogeneous land and 6000 A-F 1 of water to 2 neigh- boring villages: Berkeley and Oakland. Both villages produce only one product, avocados (for export), using the land and water. The government doesn't regulate the water trade (meaning it's free to trade) and they allocate the land and water. For both villages, the per acre production function is y = 32 e- 2 e 2 (in tons), where e is the e ective input, and water e ciency h = 0 . 5 under the current technology. The xed production cost ( u ) is $100 per acre. The market price for avocados is $200 per ton. Part a If there are no transaction costs involved and water deals are easy to reach, ideally, what would be the applied input ( a ) per acre for each village? What is the output per acre in this case? How much are the total social bene ts? Would total social bene ts change for di erent levels of land allocation to individual villagers? Part b Under what change in circumstances would the villages choose to allocate water di erently than in Part a? Give at least two. [Assume that trade in water is free.] Part c Though the rst question described the ideal case, actually there have been many ghts between these two villages over water rights. Recently, it escalated into the Bloody Con ict, after which Oaklandthese two villages over water rights....
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- Spring '07