Environmental and Resource Economics Questions

Environmental and Resource Economics (ECOM3105)

BSc. Economics - ECN

Semester: First Semester

Level: 300

Year: 2019

Answers (200 )

THE UNIVERSITY OF BAMENDA

FACULTY OF ECONOMICS AND MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS

First Semester Main Examination: 2018/2019 Credit Value: 5

Course-ECOM 3105: Environmental and Resource Economics

Course Lecturers: Dr. Ndamsa D. T. and Mr. Badjo M.

Time: 2 Hours Course Status: C Date: 7 March 2019

Venue: Hall Instruction: Answer all questions.

Question One (20 marks)

A factory producing chemical fertilizers, with marginal net private benefits: MNPB = (4 - 0.5Q) francs, is polluting the

nearby river, causing environmental damage: MEC = 1.5Q francs, where MEC is marginal external cost and Q the output

level in units.

a) Define MNPB and MEC. (4 marks)

b) Explain why the MNPB curve slopes downward from left to right? (3 marks)

c) How much will the factory produce to maximize its profit, and how much profit will it then have? (5marks)

d) If the government decides to regulate the company using a tax, how high should the tax rate be? How much tax will the

factory be paying? (4 marks)

e) How will profits be affected by the tax? Determine the new profit level. (4 marks)

Question Two (15 marks)

Write short notes on the following allocative economic efficiency concepts, using graphs and/or mathematical expressions:

a) Efficiency in consumption (5 marks)

b) Efficiency in production (5 marks)

c) Product mix efficiency (5 marks)

Question Three: (15 Marks)

a) With the aid of adequate examples explain the rationale behind environmental protection. ( 6 marks)

b) Environmental protection is a global concern and has called for several agreements and conventions worldwide. Write a

short note on the Kyoto and Montreal protocols.(6 marks)

c) Suppose an industry has four firms with different total abatement cost functions (TAC

, TAC

and TAC

for

firms 1, 2, 3 and 4 respectively). What are the necessary and sufficient conditions for cost effective allocation of pollution

control if a target of Q units of emissions is to be achieved? (3 marks)

Question Four: (20 Marks)

Suppose the demand function of a natural resource exploiting company is given by: MB =100 – 4Q and its

supply function is: MC = 20 Per Unit extracted.

Suppose the stock of the resource available is fully known and estimated at 50 units. The prevailing interest rate on the stock

market is 10%.

a) Find the static efficiency allocation both algebraically and graphically.(4 marks)

b) In a two periods setting, what is wrong with this static allocation? (2 marks)

c) Find the dynamically efficient allocation in a two periods setting and the corresponding prices for each period.(6 marks)

d) Define the concept of Marginal User Cost (MUC) and determine the MUC for each period. Represent the MUC of the

first period graphically. (6 marks)

e) What do you observe? ( marks)

Good luck!

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