Chapters 5, 6, 7
1. Assume we have a fixed supply of a depletable resource to allocate between two periods.
Also assume that the demand function is the same in each of the two periods,
given by the formula P = 4 – 0.2q, and the marginal cost of supplying the resource is constant at $1 per unit. Now, assume the available supply of the resource q is 10 units, and the discount rate is 10%.
What is the dynamically efficient allocation of this resource? Show your work.
2. Explain how the premise of Rawls’ work A Theory of Justice applies to the concept of sustainability criterion.
3. Explain what the Hartwick Rule is and provide your opinion as to whether you think the literal interpretation of this rule represents a realistically achievable sustainability objective.
4. Explain the differences between current reserves and potential reserves, and explain the fundamentals behind how potential reserves can become current reserves.
5. Provide a real world example of a (current, historic, or potential) example of a “switch point” in our society, and explain why it might occur.
6. When the marginal user cost of resource extraction declines over time, marginal user cost _____________.
7. Does the advent of fracking increase net benefits to society? Why or why not?
8. What are the current problems with using nuclear sources (i.e. uranium) as a potential transition fuel from conventional fossil fuels in power generation?