ERE HW 2 Solution

# ERE HW 2 Solution - AEM 2500 Environmental and Resource...

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1 AEM 2500: Environmental and Resource Economics Fall 2009 Homework 2 Solution Key 1. a. & b. Create individual and aggregate demand schedules. P C1 C2 C1+C2 0 20 10 30 0.5 18 9 27 1 16 8 24 1.5 14 7 21 2 12 6 18 2.5 10 5 15 3 8 4 12 3.5 6 3 9 4 4 2 6 4.5 2 1 3 5 0 0 0 c. The algebraic equation for the aggregate demand could be obtained by using the intercept and slope approach used in answering Q1 from HW 1. Or, one could add the two equations, using the logic that if price is held constant, the sum of Q C1 and Q C2 will yield aggregate demand. Q C1 = 20 – 4*P Q C2 = 10 - 2*P Q Aggregate = 30 – 6*P Remember that it is always good to cross check your answer, e.g. 30 – 6*(4) = 6, which corresponds to the demand scheduled above. d. To obtain the marginal benefits equation, simply invert the aggregate demand equation to get: P = MB = ((- 1/6) * Q) + 5 2. a. & b. Create individual producer and aggregate supply schedules. P S1 S2 S1+S2 0 0 0 0 0.5 0.5 1.5 2 1 1 3 4 1.5 1.5 4.5 6 2 2 6 8 2.5 2.5 7.5 10 3 3 9 12 3.5 3.5 10.5 14 4 4 12 16 4.5 4.5 13.5 18 5 5 15 20

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2 c. The algebraic equation for the aggregate supply could be obtained by using the intercept and slope approach used in answering Q1 above. Or, one could add the two equations, using the logic that if price is held constant, the sum of Q C1 and Q C2 will yield aggregate supply.
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