PS2-Part%20II%20-%20Fall%202009 - Econ 131 Fall 2009...

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Unformatted text preview: Econ 131 Fall 2009 Problem Set 2: Part II 1. Economic Valuation: How and Why? a. What is the value of education for you? Can you use like Figure 3.5 (page 45 of our text) to help answer this question? b. How can you measure the value of education, if you had the market demand curve? c. Naess, the Norwegian philosopher, was a strong opponent of economic valuation of the environment arguing that the environment has an intrinsic value that cannot be given an economic value. Using the example of education, can you make a counter-argument to Naess? d. Why do we need to give an economic value to the environment? (Is it just because humans are materialistic ?) 2. Consider the "La Jolla Friends of the Seals vs. the City of San Diego" Case: a. Since the seals are a distinct a tourist attraction, what valuation method would you use for measuring this benefit? Describe how you would implement in practice the method you are proposing. b. Peter has never been to California, let alone La Jolla, yet he was distressed when he read about the City of San Diego's intention to remove the seals. What is this type of value that Peter places on the Seals in the Children's Pool in La Jolla? How would you measure such value that individuals like Peter have? 3. City legislators are considering expanding the local harbor. The proposed expansion will require paving over a public beach. The harbor addition would result in an estimated net benefit for the city of $1 billion. To determine if the expansion should be carried out, the legislators first want an estimate of the total costs. a. The city engineers present a proposed budget that states they can build the new harbor for $5 million. Claiming the benefits exceed the costs, they argue that the harbor should obviously be expanded. Are they correct? Nearby homeowners begin to complain when they hear of the proposed harbor expansion. They claim that they paid a large premium to own a home with a beach view. b. Using information on the features, location, and price of homes around the region, how can the legislators estimate the cost to homeowners of paving over the beach? To avoid additional public outcry, the city decides to get feedback from all of its residents. The city sends out a questionnaire to each household that asks how much they would be willing to pay to continue to have access to the beach. c. How can the city officials use the information to determine if the harbor should be expanded? Can you think of any issues that would reduce the validity of the questionnaire results? 4. An electric plant must heat lake water to 300 degrees Fahrenheit to produce electricity. The firm can return the 300 F water to the lake at no cost or it can undergo a process to cool the water. For each degree below 300 F that the firm cools the water, it costs the firm $100. Returning warm water to the lake reduces the fish population. If the water is returned at a temperature of T degrees Fahrenheit, the local fishermen's profit is given by . a. What is the benefit to the fishermen of cooling the water by 1 degree (from T = 300 to T = 299)? b. How much would the fishermen be willing to pay to reduce the temperature of the returned water by one degree (from T = 300 to T = 299)? c. At what temperature should the water be returned to maximize social welfare? ...
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This note was uploaded on 12/09/2009 for the course ECON 131 taught by Professor Groves during the Fall '09 term at UCSD.

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