ENVIRONMENT AND NATURAL RESOURCE ECONOMICS

ASSIGNMENT 2
1. Below is the marginal willingness to pay of a consumer for organic apples.

a. What is this individual’s total willingness to pay at a consumption level of 4 apples?

b. If the price of organic apples is $2.40, how many apples would this person consume?
2. Below are the marginal willingness-to-pay schedules for organic apples for two individuals.

Construct the aggregate marginal willingness-to-pay (the demand) curve for this group of two
people.

3. Go back to question 2, suppose the marginal cost of producing this item is constant at $5 per
item. What is the socially efficient rate of output?

4.Following are portions of the demand curves of three individuals for the water quality in a small
pond. The water quality is expressed in terms of the parts per million (ppm) of dissolved
oxygen (DO). Water quality improves at higher DO levels. The demand curves show the
marginal willingness to pay of each individual (A, B, C).
a) Complete the table. Find the aggregate marginal willingness-to-pay curve of these three
people at each DO level.
b) If the actual marginal cost of increasing DO is $12, what is the socially efficient level of
DO in the lake, assuming these three people are the only ones involved?