ECS2606 Assignment 1 Semester 2 2023 (ANSWERS)

ECS2606 Assignment 1 Semester 2 2023 (ANSWERS) QUESTIONS ASKED: Assignment 01 Answer ALL the Questions 1. An industry supply curve can be derived under competitive conditions, where each firm receives the same output price. Considering this fact, what is the relationship of this procedure to the equimarginal principle? [5] 2. Considering the definition of a public good, is a library a public good [5] 3. Consider the possibility of putting in effect a new law requiring oil tankers in coastal waters of South Africa to comply with certain types of navigation rules. Assume a scenario in which there is an oil spill caused by a tanker accident in these waters in the very next year. Does this mean that the law has had no impact? [5] 4. Suppose there is a river on which are located several micro-breweries, each of which discharges pollutants into the water. Suppose somebody invents a new technology for treating this waste stream that, if adopted by the breweries, could substantially diminish emissions. Does this mean that the law has had no effect? [10] Read the excerpt below and answer the question that follows Suppose we wished to evaluate the benefits and costs of a proposal to control air pollution emissions from a large factory. On the positive side, pollution abatement will mean reduced damage to exposed materials, diminished health risks to people living nearby, improved visibility, and even new jobs for those who manufacture pollution control equipment. On the negative side, the required investments in pollution control may cause the firm to raise the price of its products, close several marginal operations at its plant and lay off workers and put off other planned investments designed to modernise its production facilities. How do we determine the willingness to pay for the favourable effects? First, it is relatively easy to value the reduced damage to materials. If, say, awnings will now last ten years rather than five years, it is straightforward to multiply the number of awnings times their price to get an idea of savings to consumers— so long as the price of awnings is not affected by the policy. If reduced pollution meant more agricultural output, it would be similarly easy to value because crops have well-defined market prices. In other words, when benefits involve marketed outputs, valuing them is not difficult. But what about reduced health risks or improved visibility? Because these are not things that people buy and sell directly, it is much less clear how to estimate the willingness to pay (the value of the benefits). 5. Discuss two major techniques that are available to estimate willingness to pay for improvement in environmental quality e.g. reduced health risks or improved visibility. [25]