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Unformatted text preview: Section Notes Week 8 Outline Natural Resources Problem Set 2 Questions Key Concepts/De nitions Renewable/Nonrenewable Resources Open Access Tragedy of the Commons Steady State Decision making over time To compare the bene ts and costs of a project that generates ows over time, we calculate the net present value: NPV = T X t =0 B t- C t (1 + r ) t where B t and C t are the bene ts and costs at time t , and r is the inter- est/discount rate. If the ow is an annuity constant value (call it A ) every year, forever starting in period 1,then the sum is NPV = X t =1 = A (1 + r ) t = A r The discount rate is the rate used to calculate net present value and evaluate trade-o s over time, the interest rate is a rate determined by market forces (combinations of people's discount rates, plus preferences on risk and expected in ation, etc.) The distinction is not important since for this class we'll pretty much always take the real interest rate to be the discount rate....
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This note was uploaded on 09/24/2011 for the course ECON C125 taught by Professor Zelberman during the Spring '09 term at University of California, Berkeley.
- Spring '09