Acceptable logotypeECO 3620. Environmental Economics

Instructor: John Whitehead
e-mail: whiteheadjc@appstate.edu

Exam #3

Answer 4 of the 5 questions. This take home exam is your own independent work but feel free to use your notes and textbook. The due date is Wednesday, December 6 at 9 am.

1. Using the two-period nonrenewable natural resource model, illustrate and explain the efficient intertemporal allocation (make sure to illustrate and define marginal user cost). Illustrate and explain the effects on marginal user cost of:

  1. an increase in population in the second period
  2. a potential decrease in supply in the second period
  3. an increase in the discount rate

2. Describe and graphically illustrate how competitive markets leads to the optimal price path for a nonrenewable natural resource. In other words, illustrate and describe Hotelling's rule. Make sure the include the backstop fuel (i.e., renewable resources). Using separate diagrams, illustrate and explain the effects of the following on the price path and the switch point:

  1. an emissions tax on the nonrenewable resource
  2. subsidies in the nonrenewable resource sector
  3. subsidies in the renewable resource sector

3. Using a diagram of the bioeconomic model of the fishery:

  1. Show the open access (OA), maximum sustainable yield (MSY) and optimum sustainable yield (OSY) effort levels. For each describe the differences in rent (i.e., profit), sustainable catch and the equilibrium stock size.
  2. Which of the above outcomes can be described as the "tragedy of the commons?"
  3. In this context, which group of scientists is more conservationist? Biologists or economists? Explain.

4. Consider the economics of forestry. Suppose that a landowner must decide the best time to harvest timber when the opportunity cost of land is equal to zero. Describe and graphically illustrate the economics of the optimal harvest time. Then, illustrate the effects of the following on the harvest time:

  1. a positive opportunity cost of land (i.e., what is the optimal rotation time?)

  2. an increase in nonharvest benefits of forest  recreation

  3. an increase in the interest rate

5. Consider the problem of climate change (i.e., global warming).

  1. Explain how a neoclassical economist would tackle the problem of the emission of greenhouse gases in the transportation sector of the economy. Be sure to include how sustainability might be achieved.

  2. Explain how an ecological economist would tackle the problem of the emission of greenhouse gases in the transportation sector of the economy. Be sure to include how sustainability might be achieved.