ECON131 Assignment Instructions

Answer ALL questions, clearly and in your own words. ALL relevant working must be shown.
Your assignment may be typed or hand-written.
There are to be NO appendices in your assignment.

Marks:

The total mark for the assignment is out of 100.

Each of the 20 questions is worth 5 marks.
This Assignment accounts for 20% of your Total Assessment.

Due date:

May 22, 2015 4:00pm

You must submit your assignment to BESS (E4B106).

Plagiarism:

Each assignment must represent the student's own work. In particular, this means
that the written answers submitted by the student should be composed by that
student. The copying of another student's answer or textbooks, or part thereof, is
clearly regarded as plagiarism. Assignments may be scanned by software that detects
plagiarism. Cases of plagiarism will be dealt with severely. For further information on
plagiarism and how to avoid it, please refer to the unit outline.

Planet Issues Food Production

1. There is a list on iLearn where each student has been designated a unique country:
a. What is your designated country?
b. Provide the flag and a map of your country.
c. What is the most recent estimated population of your designated country? Let this
value be known as q.

2. Assume the population in 2014, P0 = q/1,000, when t = 0 and that it grows by a ratio of r every
year. Explain why the population in year t is given by:
Populationt = P0rt

3. The economist, Thomas Malthus suggested that food supplies grow at an arithmetic rate.
Assume that the annual food supply is initially b tonnes per year, and that every year this
production increases by m tonnes. Explain why the expression for the food supply, in tonnes,
in year t is given by:
Foodt = b + mt

4. Assume that the initial supply of food in your designated country is equal to q/500 tonnes of
food. Let this initial supply be known as b in the Food equation, i.e. the initial value of food
supply when t = 0. What is the value of b? Note: 2014 is year t = 0.

5. If the population growth ratio, r = 1.07 and the annual increase in food production, m =
q/10,000 tonnes:
Calculate and display in a table, the values of Populationt and Foodt for t = 0, 10, 20, 30, 40
and 50.

6. Construct a single graph of time on the horizontal axis and each of Population and Food on
the vertical axis. Clearly show where the two curves intersect.

7. If each person consumes (demands) 1 tonne of food per year, in how many years will your
country run out of food?
8. Find the year in which the populations demand for food exceeds 10 times its initial demand
for food in year 0.

9. Suppose that the population growth rate is now lower at r = 1.02. Now find the year that the
populations food demand exceeds 10 times its demand for food in year 0.

10. Practically speaking, is it inevitable that, if food is growing arithmetically (m > 0) and
population geometrically (r > 1), that food supplies will always run out?

Planet Issues Environmental Protection

Calculating a Pigovian Tax
A certain firm in your designated country is releasing pollutants during production of a good G. The inefficient
over-production caused by this negative externality is to be corrected using taxes. Let TSB denote total social
benefit, TPC denote total private cost, TEC denote total external cost, and
TSC = TPC + TEC denote total social cost. The marginal functions are

= +

Note that without a tax, MSB and MPC determine the market demand and supply respectively. Equilibrium
occurs at Q=Q* when MSB (demand) = MPC (supply) if the external costs are ignored and this leads to a dead
weight loss, DWL. The efficient output occurs at Q = Q*e when MSB = MSC. If a tax t = MEC, which depends on
Q*e is placed on the good then the equilibrium output will be Q = Q*e and there will be no dead weight loss.
Such a tax is known as a Pigovian tax. The figure below illustrates these ideas.

See also the six minute Khan Academy videos on Negative Externalities and Taxes for Factoring in Negative
Externalities. Note:
MSC = MPC + MEC

Suppose that total private cost TPC and total external cost TEC are given by
TPC = zQ3 + aQ2 + bQ
TEC = yQ3

Suppose also that marginal social benefit MSB, (demand), is determined by

MSB = P = dQ + 40
4

Where:
z = HDI / 10
a = HDI / 2.5
b=1
y = HDI / 7.5
d = HDI / 0.25

Please note that the HDI stands for the Human Development Index, which is published by the United
Nations Development Program. You will need to research for your countrys HDI. The economic theory
of externalities has nothing to do with the HDI. The HDI has been chosen for the purposes of this
assignment task to keep all individual assignments unique.

Carefully refer to the diagrams on the previous page when calculating the required values. The
equations and curves are colour coded to assist you.

SHOW YOUR WORKING FOR ALL QUESTIONS!

1. A) A list on iLearn gives each student a unique country. What is your designated country?
B) What is the HDI of your country? (Research!)
C) Determine the equilibrium supply, Q* assuming external costs are ignored.

2. Determine the equilibrium price, P* assuming external costs are ignored.

3. Determine the efficient equilibrium supply, Qe* assuming both private and external costs
considered.

4. Determine the efficient price, Pe* assuming both private and external costs considered.

5. Determine the Pigovian tax rate, t.

6. Determine the total tax revenue collected.

7. Determine the amount of the tax effectively paid by consumers and the amount effectively
paid by producers.

8. Determine the price elasticity of demand, ED at the no tax equilibrium quantity, Q*.

9. Determine the price elasticity of supply, ES at the no tax equilibrium quantity, Q*.

10. Comment on the relationship between the elasticities of demand and supply and the
consumers and producers share of the total tax burden.

END OF THE ASSIGNMENT