ERE HW 7 Solution

ERE HW 7 Solution - AEM 2500 Environmental and Resource...

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AEM 2500, Environmental and Resource Economics, Fall 2009 Homework #7: Non-Renewable Resources and National Income Accounts Solutions (Distributed November 16. Due in red box by 9:30 a.m. Nov. 30, 2009.) 10 Points. 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. (a) Gross Domestic Product (GDP) is the total value of production in Equatoria, so this should be obtained simply by adding the output values for the three economic sectors: Value of agricultural sector output \$800 million Value of mining sector output\$450 million Value of industrial sector output \$700 million Total value of output \$1,950 million For the standard measure of Net Domestic Product (NDP), we subtract depreciation of manufactured capital (D m = \$150 million) to get \$1,800 million. Net Investment is Gross Investment minus D m or \$550 million minus \$150 million = \$400 million. (b) To get environmentally-adjusted NDP (NDP*) we must calculate a value for depreciation of natural capital or environmental damage in each sector. The agricultural sector: We are losing 200 tons of soil per hectare per year. Yield loss is 0.75% per 100 tons of soil lost per hectare. With 200 tons of soil loss per hectare, productivity decreases by 1.5% of the \$800 million output, or \$12 million. This yield loss is only for a single year.

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ERE HW 7 Solution - AEM 2500 Environmental and Resource...

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