1)Define the 5 different types of capital discussed in class (10 points). Provide an example of each type of capital applied to the creation of Odell’s IPA, Odell Brewing Company, Fort Collins, Colorado (10 points). (Chapter 2)
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2) Construct a single model that can be used for illustrating the management of renewable, nonrenewable and recyclable resources over two time periods (5 points). Provide a definition and example of each type of resource (5 points) and a brief interpretation of the variables in the context of the resource (5 points). Identify all situations under which sustainable extraction rates might take place (5 points).
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3) Complete the table below (10 points) that illustrates market failure under open access beach. Identify the open access solution and the socially optimal solution (5 points). Discuss the technical differences between privately optimal and socially optimal resource use and at least two means by which the situation might be improved from society’s perspective (5 points).
Daily costs and returns from an open access beach
Number of visitors (#)
Benefits per visitor ($)
Total benefits
($ revenue)
Cost per visitor ($)
Total cost ($)
Net returns per visitor ($)
Aggregate net returns ($)
1
20
14
2
20
14
3
20
14
4
18
14
5
16
14
6
14
14
7
12
14
8
10
14
9
8
14
10
6
14
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4) Provide a real world example and graphically illustrate a negative production externality. Graphically demonstrate how the following tools might be used to arrive at the socially optimal level of output: 1) taxation; 2) production quantity controls. Discuss the role of incentives and the likely distributional implications of your graphical solutions. Be sure to label all components of your graph. (20 points)
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5) The following table describes the benefits and costs arising from a program to restrict emissions of a pollutant. Current emissions are 10 tons/month. Identify the emissions level at which net benefits would be maximized. Show that this is not the same as the emission level that gives the highest benefit-cost ratio. Identify the economic optimal level of emissions and the approximate cost recovery level of emissions. Explain the discrepancy among max net benefits, cost recovery and max benefit-cost ratio.
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6) Illustrate and prove that the rate of output that equates MSB with MSC is (statically) efficient. Graphically illustrate that static efficiency results in greater benefits to society than production at a level greater than static efficiency would imply. (10 points) In a second graph, show and discuss what happens to the statically efficient rate of output when there is population and income growth? (10 points).
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7) Let D equal the domestic demand for oil, Sd equal the domestic supply and Si equal imported supply of oil for gasoline. Assume the world supply is infinitely elastic and the domestic supply is more price sensitive. Assume we currently import some oil and produce some for the domestic market.
a) Graphically illustrate the scenario above. (5 points)
b) Our domestic policy objective is to ‘minimize dependence on imported oil.’ Illustrate the effect of 1) an import tax on oil, 2) a domestic oil subsidy, and 3) domestic investment in hydrogen powered vehicles could meet that policy objective. (you may draw additional graphs, if you prefer) (10 points)
c) Discuss the welfare implications of each policy option. (5 points)
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8) Many consider fossil fuel consumption to be fairly inelastic in the short run and more elastic in the longer term. In response to sharp increases in the price of petroleum (a) first people change their short term behavior to use less fuel, but more importantly (b) the expectation of long term price increases launched a wave of research into substitute sources of energy and their adoption by consumers. Please graphically illustrate effects (a) and (b) (10 points). Then (c) demonstrate graphically the likely effect of subsequent fossil fuel price decreases on fossil fuel demand (5 points). (d) Discuss the long-term effect of price expectation induced technological innovation and consumer preferences (5 points).
9) A. Create a graph describing a hypothetical relationship between Timber values (H) and Biodiversity values (E) in order to establish the optimal number of clear cut timber plots (n) within a forest when the objective is to maximize the economic returns to both timber and biodiversity. (10 points)
b. Please tell the story of this graph. Identify and provide the economic intuition for the optimal number plots when managing for 1) wood, 2) biodiversity and 3) both. (10 points)
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10) a. Following class discussions and the text, provide a fully labelled graphical illustration of the theoretical relationship between fishing effort and revenue.(5 points)
b. Identify maximum fish stock, zero fish stock, maximum sustainable yield, the socially optimal rate of harvest and the open access solution. (5 points)
c. Identify the resource rents and in situ value. (5 points)
d. Discuss what causes these three possible effort rates (MSY, E* and OA) to differ and the implications of each effort rate on the health of the fishery (5 points).
Sample Solution
