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Unformatted text preview: 2011
.41*9417 + 9417 = 13278 in 2012
.41*13278 + 13278 = 18722 in 2013
. 41 * 18722 + 1 8722 = $ 26,298 i n 2014 (in reality, current spot market price for lithium carbonate
is between $5,000 and $6,000 per metric ton)
2) Water, now and later.
Suppose Milwaukee has total urban demand for water from Lake Michigan such that the marginal net
benefits are P = 1 – 0.04Q each year; P is in dollars and Q is in billions of gallons. If the Great Lakes
Compact limits Milwaukee to 40 billion gallons of consumption over two years, answer the following
questions. Let the discount rate be 5%.
A) [4] How much would the city consume in each year if water were not limited?
M N B now = P0 1 0.04Q0
M N B next year = P1 = (1 0.04Q1)/(1+.05)1
To solve for this, think about the MOST amount of water the city could consumer and still have positive net
benefits: When MNB>0 the consumed gallon is good, if MNB<0 it is bad. So Find where it is zero and solve for Q.
0 = 1 0.04Q0 and 0 = (1 0.04Q1)/(1+.05)1
Now ____25 billion gallons______, Next Year ____25 billion gallons_____ UWM
Econ 328 Professor Grant
Spring 2014 [6] How much do they consume in each period under the agreement?
Set the two equations equal to each other (gives intertemporal efficiency) 1 0.04Q0 = (1 0.04Q1)/(1+.05)1
Use the constraint of 40 gallons per two years: Q0 + Q1 = 40 Q0 = 40  Q1 and put this in the previous
equation: 1 0.04 (40  Q1) = (1 0.04Q1)/(1+.05)1
1 0.04*40 – ( 0.04)Q1 = 1/1.05 – 0.04Q1/1.05
0.6 + 0.04Q1 = 0.95 – 0.038Q1
0.038Q1+ 0.04Q1 = 0.95 + 0.6
0.078Q1 = 1.55 Q1 = 1.55/0.078 = 19.87 BILLION GALLONS
So 40 – 19.87 = Q0 = 20.13 BILLION GALLONS
Now ______20.13 billion gallons _______, Next Year ______19.87 billion gallons _______
B) [2] If population is growing by 5% per year and was not taken into account in the marginal net
benefit, how should we alter the so...
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This homework help was uploaded on 04/07/2014 for the course ECON 328 taught by Professor Mcginty,m during the Spring '08 term at Wisconsin Milwaukee.
 Spring '08
 Mcginty,M
 Environmental Economics

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