Econ 131 lecture 3

# Econ 131 lecture 3 - TA Sessions • First TA session on...

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Unformatted text preview: TA Sessions • First TA session on Monday to cover problem set 1 • TA of¡ce hours -- regular hours plus extra hours before exams • For all times and locations check TED (we’ll post details on the ¡rst TA session and hours later this week) Reading • Today: Chapter 3 • Next week • Tuesday: Chapter 4 and start Chapter 5 • Thursday: Chapter 5 Discounting, solving for r • Use algebra to write down the range of discount rates that make the following project a good idea: Build renewable energy sources for San Diego at a cost of one billion dollars in 2010. Get a beneFt of 10 billion dollars in 2060 because the severity of climate change will be reduced. Discounting a stream of beneFts • How would we calculate the present value of the following: \$5 billion next year \$5 billion in 2 years nothing for years 3-9 \$10 billion each in years 10 and on Measuring costs • Opportunity cost: what could have been achieved if using the same resources for another purpose • Instead of building pollution control equipment, we could use the labor, capital, and materials to build other goods • If prices are available, they provide an easy way to measure opportunity cost: the value of labor or materials is equal to their price Opportunity cost example • Hire a guard for a sea turtle nesting site in Malaysia • Wages for unskilled labor of \$10/day • One turtle saved each 5 days of guarding • Opportunity cost? The worker could have been producing other products worth \$10 each day • We give up \$50 worth of other products for each turtle saved Prices • For most goods including labor, capital, land, and many commodities we can regard the market price as the opportunity cost of using that good • Intuition: At the margin, the market price represents the marginal value to people who currently buy that good • This tends to make the cost side of environmental policy problems relatively easy to measure since cost is often in terms of marketed goods or services • What are some examples where this is true?...
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Econ 131 lecture 3 - TA Sessions • First TA session on...

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