Download Natural Resource Economics

EWU – ECON 457 - Natural Resource Economics
The economics of recycling
The market demand curve for aluminum cans is given by the following equation: P = 8 - 0.4 Q. The
supply curve of aluminum cans using virgin raw materials is given by: P = 2, and the supply curve from
recycled aluminum cans is given by: P = (4/10) Q.
1. In the space below, plot the market demand curve, the supply from virgin raw materials, and the
supply curve from recycled aluminum cans.
2. Determine through calculation the market equilibrium price (P1) and quantity (Q1), as well as the
quantity of recycled cans produced (Q2). Illustrate them on the graph above. Determine the
quantity of cans produced from virgin materials, and the recycling ratio – i.e. the proportion of
total cans that stem from recycled resources.
3. Below consider a situation where the total demand for aluminum cans is reduced. This reduction
in demand can be thought of being brought about by a shift to another type of container (glass,
paper), or an overall reduction in consumption of whatever the cans contain. The equation for the
new demand curve is: P = 6 - 0.4 Q. In the space below, plot the new market demand curve, and
re-plot the supply from raw materials and the supply from recycled aluminum cans.
4. Determine through calculation the new market equilibrium price (P1) and quantity (Q1), as well as
the quantity of recycled cans produced (Q2). Illustrate them on the graph above. Determine the
quantity of cans produced from virgin materials, and the recycling ratio – i.e. the proportion of
total cans that stem from recycled resources. Compare your results to those you obtained in 2.
5. Next consider a situation where the cost of producing aluminum cans from recycled material is
reduced. The equation for the new supply curve from recycled aluminum cans is: P= (4/10) Q - 1.
In the space below, re-plot the initial market demand curve and the supply curve from virgin raw
materials, and plot the new supply curve from recycled aluminum cans.
6. Determine through calculation the new market equilibrium price (P1) and quantity (Q1), as well as
the quantity of recycled cans produced (Q2). Illustrate them on the graph above. Determine the
quantity of cans produced from virgin materials, and the recycling ratio – i.e. the proportion of
total cans that stem from recycled resources. Compare your results to those you obtained in 2.
7. Finally consider a situation where the cost of producing aluminum cans from virgin materials is
increased through the imposition of a $1 unit tax. In the space below, re-plot the initial market
demand curve and the supply curve from recycled materials, and plot the new supply curve from
virgin materials.
8. Determine through calculation the new market equilibrium price (P1) and quantity (Q1), as well as
the quantity of recycled cans produced (Q2). Illustrate them on the graph above. Determine the
quantity of cans produced from virgin materials, and the recycling ratio – i.e. the proportion of
total cans that stem from recycled resources. Compare your results to those you obtained in 2.