ECON 6700 & ECON 7720: Semester 2 2024 PROBLEM SET 1 Questions

Java Python ECON 6700 & ECON 7720: Semester 2, 2024

PROBLEM SET 1 Questions

Instructions

Answer ALL of the following questions.

Answers must be typed and submitted via Blackboard using the provided link by the due date/time specified.

For full marks you need to explain your answers and clearly show your working.

This individual assignment will be marked out of 80 marks and is worth 20% of your total mark for the course. Marks for individual questions and parts are indicated.

This assessment task evaluates students' abilities, skills and knowledge without the aid of generative Artificial Intelligence (AI). Students are advised that the use of AI technologies to develop responses is strictly prohibited and may constitute student misconduct under the Student Code of Conduct.

Late submission: a penalty of 10% of the maximum possible mark will be deducted per 24 hours from time submission is due for up to 7 days. After 7 days, you will receive a mark of 0.

Question 1 (20 marks)

a) The demand for vaccinations for a specific disease is given by P  = 13 − 0.0005Q where P is the price (in dollars), and Q is the number of vaccinations per year. The marginal social benefit (MSB) function is given by MSB  = 13 − 0.00025Q. The marginal cost of a vaccination is a constant $9.

i) With a competitive market, what price and quantity will result, assuming there is no government intervention? (2 marks)

ii) What is the socially optimal (efficient) quantity in the market? If your answers for i) and

ii) are different, explain the reason for this difference. (4 marks)

iii) Compute the cost to society (i.e., the deadweight loss) of allowing the market to operate in an unregulated fashion and show this cost graphically. (3 marks)

iii) What government policy could be used to achieve the optimal (efficient) outcome? Be as specific as you can. (3 marks)

b) Three individuals consume a public good, and their demands are expressed as:

PA  = 500 − 2QA                 (for Q < 250)

PB  = 300 − QB                    (for Q < 300)

PC  = 400 − 2QC                 (for Q < 200)

where P represents price in dollars per unit and Q represents output in units per day. The marginal cost of providing the service is given as a constant $300 per unit. Determine the efficient level of output of this public good and show graphically. (8 marks)

Question 2 (20 marks)

Evaluate whether the following statements are True, False, or Uncertain providing a clear explanation for your answer. In both cases, you will need to provide a well labelled and well explained graph to support your answer. (Note that you must provide an explanation to get any marks for this question.)

a) Positive net benefits are both a necessary and sufficient condition for optimal environmental policy. (10 marks)

b) Because a monopoly will produce less of a good than a competitive market will, welfare is always greater under monopoly than under competition in the presence of a negative externality. (10 marks)

Question 3 (15 marks)

The local government is considering t ECON 6700 & ECON 7720: Semester 2, 2024 PROBLEM SET 1 Questions wo alternative uses for a popular coastal area – either protecting the area by creating a Marine Park or mining it for a rare earth mineral (Mining). They have collected the following information regarding the costs and benefits of each program.

Program 1: Marine Park

Construction of the park takes one year and costs $1,250,000. Assume that all construction costs are paid at the beginning of construction.

Ongoing maintenance costs (paid annually once the park is open): $130,000 Increased tourist revenue (received annually once the park opens): $300,000

Program 2: Mining

It only takes one year to mine the area. Extracting the mineral costs $3,000,000 which is paid at the beginning of the mining operation.

All revenue is received after extraction is complete (i.e., after one year) and yields $5,000,000.

The mine site causes coastal erosion that causes damages of $200,000 annually starting immediately and continuing after the mine has finished production.

The government considers only costs and benefits accruing in the next ten years.

Discount rate assumption: please use the LAST digit of your own student number as the discount rate when answering this question, except if the last digit of your student number is a 0 then please use a discount rate of 10%. (Note your student number is 8 digits long.)

Which program should the government choose, if any? Explain the reasons for your recommendation and clearly show any calculations you make.

Question 4 (25 marks)

In July 2020, a second runway was opened at Brisbane airport. Since that time numerous complaints have been made regarding the noise generated from new flight paths associated with this new runway. See, for example, this news article “Our lives have been completely destroyed': How Brisbane's new runway has made life hell for many” .

In response, the Queensland government has asked you, an environmental economics consultant, to put together a proposal regarding how you could measure the cost of noise disturbance suffered by people living near the airport and under flight paths.

Your proposal should:

(1) recommend one revealed preference and one stated preference technique and for each of these recommended methods provide the following (10 marks per method)

A general description of your recommended method and why it is the best method for this problem. A description of how you would implement the method including:

The relevant market

The primary variables of interest

The data requirements – how you would obtain the data and how it would be used

The outcome measure(s) from your method Any potential bias in your results.

(2) conclude with a recommendation regarding which one of these two methods you would choose and why. (5 marks)

Note that your answers should be specific to the valuation problem provided and not generic. You also need to justify your choice of method(s) and why they are preferred compared to alternative methods available