asdasdfasdfECON 3803 Assignment: Short-Answer Questions
1. a) individual inverse demand: P = 10 1.0 q
aggregate demand: P = 100(10 1.0q)
P = 1000 100Q
if P = 0 ,
0 = 1000 100 Q
100 Q = 1000
Q = 1000/100 = 10
if Q = 0 ,
P = 1000 100 (0) = 1000
The number of miles preserved
will be where P = MC
500 = 1000 100 Q
Q* = (1000 500)/100 = 5
If the marginal cost of preservation is $500 per mile then 5 miles of river would be preserved.
b) The net benefits of preservation are the consumer surplus.
NB = CS = (1/2) (1000 500) (5) = $1,250
Therefore the net benefit of preserving 5 miles of river is the total consumer surplus of $1,250.
2. When an action today could make future generations worse off than people are today, this action is considered non-sustainable. A mineral deposit is a non-renewable resource. Assuming the mineral deposit discovered in the community is of sufficient grade and quantity that it can be economically extracted using current technology, any extraction undertaken today will result in less of the resource being available for the future (if technology remains constant). However, the extraction of a non-renewable resource can be considered sustainable if the value of the resource stock used is matched by capital investments of equal value in other natural resources or other forms of productive capital. Other forms of productive capital would include human and intellectual capital, and produced capital such as buildings and machinery. If the user cost (a measure of the present value of future net benefits) of extraction can be offset by these compensating investments then sustainability will be achieved even though the stock of the resource is gradually drawn down.
There are two ways of using a non-renewable resource in a sustainable manner. The first is to invest the resource rents earned from current mineral extraction into other assets that...