ECO 324: Environmental Economics
Assignment 3 (Chapters 6-9; 20 points)
Name: ______
Chapter 6 Environmental Risk Analysis (4 points)
(1) Page 144 of textbook: 2. (1 point)
Comment on the following statement: "Without exposure, there is no risk."
(2) What is RfD? Verbally describe what the RfD of 0.005 for insecticide chlorpyrifos means. (1 point)
*Note: In the US, chlorpyrifos is registered only for agricultural use, where it is "one of the most widely used organophosphate insecticides," according to the EPA. The crops with the most intense chlorpyrifos use are cotton, corn, almonds, and fruit trees including oranges and apples.
Source: http://en.wikipedia.org/wiki/Chlorpyrifos retrived on February 22, 2011
(3) Refer to “APPLICATION 6.3” on page 138 of your textbook:
a. Is exposure to radon a voluntary risk or an involuntary risk? (1 point)
b. Fill in the blank: If the indoor radon level is ___ picocuries per liter (pCi/L) or higher, the EPA recommends that some action be taken to correct the problem. (1 point)
Chapter 7 Assessing Benefits for Environmental Decision Making (9 points)
(1) Page 168 of textbook: 2. (3 points)
In response to acid rain damage to Chesapeake Bay, a collaborative federal and state program has been proposed. You have been hired to evaluate the benefits of the plan as part of a formal benefit-cost analysis. Use the Travel Cost Method (TCM) to accomplish this goal, based upon a $20 admission fee and the following pre- and post-policy recreational demand functions:
Pre-policy: P = 72 – 0.04V0
Post-policy: P = 90 – 0.04V1,
where V is number of visitors in thousands and P is the admission fee.
(Hint: Draw the graph according to slide 26 of Ch7 notes, and then calculate the change in consumer surplus.)
(2) Discuss contingent valuation method (CVM), the averting expenditure method (AEM), and the travel cost method (TCM). (6 points)
(Hint: You can talk about the theoretical motivation, procedures, strengths and weaknesses of each.)
Chapter 8 Assessing Costs for Environmental Decision Making (4 points)
(1) Suppose the MSC of cleaning Puget Sound is modeled as MSC = 10 + 1.4A, where A is the percentage of phosphorus abated, and MSC is measured in millions of dollars.
Graphically illustrate using the MSC function, labeling clearly where incremental costs of a policy initiative that increases the phosphorus abatement level from its baseline of 30 percent to 45 percent are shown. And calculate the incremental costs. (3 points)
(2) Assume you are responsible for assessing whether the air quality standard for carbon monoxide (CO) is set at the efficient level for some region. To accomplish this task, you have estimated the following marginal cost function for CO abatement:
MACmkt = 6 + 0.25A
MCE = 2 + 0.1A,
where A is the percentage of CO abatement, and MACmkt and MCE are measured in millions of dollars.
Find the MSC of abatement function. (1 point)
Chapter 9 Benefit-Cost Analysis in Environmental Decision Making
(3 points)
(1) Regenerate Table 9.2 on page 191 of your textbook: the annual inflation rate p is still the same, 5%. But please change the annual discount rate r from 10% to 5%.
Real valueperiod x=Nominal valueperiod x+t/(1+p)t PV=FV/(1+r)t
Year / Expenditure in nominal terms / Future expenditure in real dollars / Present value0 / $200.00 / $200.00
1 / $30.00
2 / $30.00
3 / $30.00
4 / $30.00
5 / $30.00
5