Economics 359M

Peter J. Wilcoxen
Department of Economics
University of Texas at Austin

Exam 2 Solution Hints

Spring 1998

Here are some hints about the answers to the exam. These are here to help you see if you're on the right track when you work through it but they are definitely NOT complete answers. To make sure this is very clear, please note: This is not a model of how these questions should be answered -- answers this terse on a real exam would receive little or no credit.

Section 1 (4 parts, 28 points total)

  1. No; Hotelling argument.

  2. Need CV because of non-use values.

  3. Lack of threshold suggests a tax policy would be better; discuss Wetizman analysis.

  4. PR=300; identified subeconomic=2400; undiscovered economic=1200; undiscovered sub=9600. Three events that would raise PR to 600: P=30; improvement in tech that lowers MEC of C to 25 or below; discovery of more A or B.

Section 2 (2 parts, 14 points total)

  1. QT=300; P=100 in all periods; Q=0,100,200; MEC=0,33.3,100; R=100,66.6,0.

  2. P=50 in all periods; Q=50,150,250; MEC=50/3,50,50; R=100/3,0,0; backstop used in period 2; raw production=150; backstop production=300.

Section 3 (2 parts, 14 points)

  1. P=50; Q consumed=500; X=50; Q raw=450.

  2. P=70; Q consumed=300; X=70; Q raw=230. Policy: $20 tax on raw production.