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Seminar exercises for ECON 1920, Spring 2004-01-21
Six seminars
2-3 February
1. Explain what is meant by the following concepts:
Marginal willingness-to-pay, Consumer surplus, Marginal cost of production, Producer
surplus, Social surplus and Equilibrium price
2. Jones’ marginal willingness-to-pay for a commodity, which can be expressed by Jones’
(inverse) demand function, is given by P = 4-x. P is the price of the commodity and x is
the quantity demanded.
Draw Jones’ demand function in a price-quantity diagram, where quantity is measured
along the horizontal axis and price along the vertical axis.
What is Jones’ total willingness to pay for 4 units of the commodity? Use the diagram.
Smith’s marginal willingness to pay for the same commodity is given by P = 5 –x.
Assume that Smith and Jones are the only consumers in the market for x. Find the Market
demand curve for x. Draw the market demand curve in a price–quantity diagram.
3. There are two (price –taking) producers in the market for x. The marginal cost of
production is given by 2x for both firms. What is their individual supply function and
what is the market supply function. Draw the supply curves in a price –quantity diagram!
What is the total cost of producing 4 units?
4. Find the equilibrium price in the market for x in a figure where you draw both the
market demand curve and the market supply curve for x. Denote the equilibrium output
x*.
Find the social surplus when the quantity consumed/produced equals x*.
Explain why the social surplus cannot be increased neither by producing/consuming more
than x* nor by producing/consuming less than x*.
16-17 February
Chapter 5, 7, 8
1. Explain the following concepts:
Dynamic efficiency, Depletable resource, opportunity costs.
2. Find the optimal allocation of a depletable resource over time by the use of a twoperiod model, when you make the assumptions described under A.
A: Marginal willingness- to- pay is decreasing in quantity consumed and identical in both
periods .
Marginal extraction costs are constant and identical in both periods.
The discount rate is zero.
Compare this outcome with the different versions given by B, C and D.
(Discuss the differences in the marginal user cost and the distribution of the resource
across periods).
B: As in A, except that the discount rent is positive.
C: As in A, except that the marginal extraction costs is lower in period 2 than in
period 1.
D: As in A except that the marginal willingness- to- pay in period 2 is higher than in
period 1 for all quantities.
3. Explain the difference between the optimal extraction paths over time for a depletable
resource in the case where there is no substitute renewable resource, and where there is a
substitute renewable resource.
8-9 March
Chapter 13
(To be announced)
29-30 March
Chapter 1, 2, 4
a) Describe the basic interactions between economic activity and the environment
b) Discuss the trade-offs between man-made goods and the environment.
Give examples of short-run and long-run environmental problems
c) Define pollution in an economic sense.
d) Define a public good and discuss how the environment fits the definition
e) Define an externality and discuss how the environment fits the definition
26-27 April
Chapter 2, 4, 15, 16
a) Discuss the concept optimal pollution in a static setting and illustrate a solution.
b) List the technical possibilities of reducing pollution
c) Discuss briefly different policy instruments to reduce pollution.
d) What are the pros and cons for direct regulation and a decentralised solution?
e) Show in a figure how a tax on pollution works in a competitive economy.
10-11 May
Chapter 3, 17
a) Explain the three types of value of the environment: user value, option value and
existence value.
b) Discuss briefly methods for estimating these values
c) Define transboundary pollution and the meaning of uniform and non-uniform
distribution of pollutants.
d) Consider the world consisting of two countries that both emit a uniformly distributed
pollutant. Each country obtains a short-run benefit from emissions. The marginal benefit
curves relating benefits to emission of the pollutant are downward sloping (i.e. the
marginal benefit decreases when emission increases). A limit on the sum of emissions is
agreed between the two countries. Make a graphical analysis of how this quota should be
distributed between the two countries by using a bath tub diagram.
e) Discuss how this solution could be obtained by emission trading between the two
countries.