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UNIVERSITY OF Zimbabwe

Economics Department
Natural Resource Economics (ECON317)
Tutorial Questions 2014/2015
1. In a logistic population growth: suppose the growth rate of a population of wild fish is
given by F(x) = 10x - 0.01x2 if the population is left undisturbed, were x is population.

a. What is the equilibrium natural population?


b. What is the maximum sustained yield, and the corresponding population?
c. Graph the population growth function. Which portions of this function correspond to
biological overfishing

2. A Small gold deposit ha s affixed mineral stock of 250 tonnes to be extracted over
two periods. Assuming that the demand for gold ore is given by a linear demand
function

Pt  700  0.25q t

The demand function is assumed to be the same over the entire extraction period. The
marginal cost of extraction are assumed to be constant at US$200/tonne. The rate of
interest at which rents are discounted is 10%.
a) What is the nominal price of ore extracted in the first and second periods. What is
the behaviour of market prices (nominal prices) with time?

b) Calculate the undiscounted value of rent for the first and second periods. What
would you say about the nominal value of rent?

c) Find the discounted value of rent for the two periods.

3. Consider the allocation of an exhaustible resource across three generations. Demand is


the same in each of the periods but mining technology is improving and MEC is falling
over time. The following information is available:

• Demand in each period: W2Pi = 1200 – Qi

• MEC in period 1: $300

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• MEC in period 2: $200

• MEC in period 3: $100

• Resource available: 1600 units

• Interest rate: 100%

Calculate:

a) the equilibrium royalty,


b) extraction cost, price and
c) quantity that would occur in each period, and summarize your results in a table.

4. What goes wrong in open access fisheries? Do these problems arise in all fisheries?
What are some policies that might be used to correct the problems? What policy would
you recommend and why?

5. Suppose that a geological survey collected the following information below about
discovered nonrenewable resource deposits in. It is also known that only 20% of the
area where the coal might be found has been explored. The resources is currently being
sold for $40 per tonne.

Grade of ore A B C D E F

MEC ($/tonne) 10 20 30 40 50 60

Quantity 1000 2500 3000 5000 7000 9000


(tonnes)

Given this information, calculate what geological survey would report as:

- Proven reserves

- Identified subeconomic reserves

- Undiscovered economic reserves

- Undiscovered subeconomic reserves

Show all workings. What events can increase proven reserves by 7000 tonnes.

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