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Högskolan i Borås
Miljöekonomi
Environmental Economics
7.5 ECTS
Ladokcode: A1ME1B
ExamCode:
Date of exam: Jan 11 2018 Time: 14 - 19
Means of assistance: Calculator, ruler, checkered paper, pen, pencil.
Total amount of points on exam: 40 Requirements for grading: A 36-40 points
B 32-35 C 28-31 D 24-27 E 20-23 F 0-19
Important! Do not forget to write the ExamCode on each paper you hand in. Good Luck!
Question 1
a) An efficient property rights structure has three main characteristics. They are? (2p) b) Bison are an example of a “common-pool” resources.
i) “Common-pool” resources have two main characteristics. They are?
ii) Figure 1 shows the revenue and costs of various levels of hunting activity of Bison. Mark the efficient level of hunting activity in the figure. Motivate your answer. (Use the figure at the end of the exam to answer the question).
Figure 1 (3p)
c) Suppose the state is trying to decide how many km of a scenic river it should preserve. There are 20000 people in the community, each of whom has an identical demand function given by P = 40 – 4q, where q is the number of km of preserved river and P the price in euro.
i) If the marginal cost of preservation is EUR 200000 per km, how many km would be preserved in an efficient allocation?
ii) How large is the economic surplus?
(3p) d) Define i) Pareto optimality, ii) Suboptimal allocation (2p) Total Benefits or Costs
Hunting effort 10 12 5 6 Total Costs Total Benefits
Question 2
a) Give two reasons why private and social discount rates might differ? (2p)
b) Fill in the blank parts with the appropriate word (cost-effective or efficient) in the following sentence:
“All ……..policies are …….. , but not all ……..policies are ……... (1p) c) There are two broad categories of valuation methods. They are? (1p) d) i) What characterizes the Contingent valuation method?
ii) The major concern with using the contingent valuation method has been the potential for respondents to give biased answers. Five types of potential bias have
been in focus. They are? (3p)
e) i) Suppose that hedonic wage studies indicate a willingness to pay EUR60 per person for a reduction in the risk of a premature death from an environmental hazard of 1/100 000. What is the implied value of a statistical life?
ii) Suppose that an impending environmental regulation to control that hazard is expected to reduce the risk of premature death from 2/80 000 to 1/80 000 per year in an exposed population of 10 million people. What is the maximum this regulation could cost and still have the benefits be at least as large as the costs? (3p)
b) There are three alternative definitions of sustainable allocations; Weak, strong and environmental sustainability. State the meaning of each. (3p)
c) Assume that we have a fixed supply of a depletable resource to allocate between two periods. Assume further that the demand function is the same in each of the two periods, the marginal willingness to pay is given by the formula P = 40 – 0.5q and marginal cost of supplying the resource is constant at EUR10 per unit. The total available supply of the resource is 100 units. How much would be produced in each period in an efficient allocation, if the discount rate is 10%? What would be the marginal user cost in each period? Draw a figure to illustrate the problem.
Question 4
a) Assume three bid rent functions, each reflecting the net benefits per hectare (10000 square meters) with respect to 1. Residential development, 2. Agriculture, 3. Wilderness. Each function shows the net benefit per hectare as a function of the distance from an urban center. The functions are as follows: 1. P = 1*104 – 2d, 2. P = 5*103 – 0,4d and 3. P = 2,5*103 -0,15d, where d is the distance in meter from the center. i) At what distance from the center will the residential area cease and cultivated land appear? ii) What is the price of land at that distance from the center? iii) At what distance from the center will cultivated land cease and wilderness appear? ii) What is the price of land at that distance from the center? Draw a figure to illustrate the problem.
(4p) b) Two firms can control emissions at the following marginal costs: MC1 = $75q1,
MC2 = $50q2, where q1 and q2 are, respectively, the amount of emissions reduced by the first and second firms. Assume that with no control at all, each firm would be emitting 50 units of emissions or a total of 100 units for both firms.
i) Compute the cost-effective allocation of control responsibility if a total reduction of 40 units of emissions is necessary.Draw a figure to illustrate. (3p) ii) Suppose now that the control authority wants to reach the goal of a
reduction of 40 emissions units with the means of auctioning off emissions allowances. How many allowances will each firm buy respectively? (That is how many units will each firm respectively emit?) At what price is demand
and supply of allowances cleared (equilibrium price)? (3p)
Fig. 1
Total Benefits or Costs
Hunting effort 10 12 5 6 Total Costs Total Benefits
