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ENR721S - ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS - 1ST OPP- NOV 2022 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF HEALTH, NATURAL RESOURCES AND APPLIED SCIENCES
DEPARTMENT OF AGRICULTURE AND NATURAL RESOURCES SCIENCES
QUALIFICATION : BACHELOR OF SCIENCE IN AGRICULTURE
QUALIFICATION CODE: 07BAGA
COURSE CODE: ENR721S
LEVEL: 7
COURSE NAME: ENVIRONMENTAL AND
NATURAL RESOURCEECONOMICS
DATE: NOVEMBER 2022
DURATION: 3 HOURS
MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER{S)
M LUBINDA
MODERATOR:
S KALUNDU
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLE MATERIALS
1. Examination question paper
2. Answering book
3. Calculator
THIS QUESTION PAPER CONSISTS OF 4 PAGES (Excluding this front page)
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QUESTION ONE
a. What is the Material Balance Model? Explain its main assumptions.
[MARKS]
(6)
b. What is pollution? Explain the types, sources, and scope of pollution.
(5)
c. Consider the market for bottled water which is defined by the following demand and
supply functions:
P = 20 - 0.0lQ
P = 5 + 0.002SQ
Where P is the price per bottle and Q is the number bottles, in thousand, that are
demanded and supplied in the market per month.
i.
Estimate the minimum selling price and choke price? What do these prices
mean.
(4)
ii.
Assuming the market for bottled water is efficient, estimate the allocative
efficient quantity and price for bottled water.
(2)
iii.
Suppose the government wants to introduce a policy that limits the number
of water bottles sold in the market to 500 thousand per month. This policy
is intended to prevent environmental damage caused by the water bottles.
(8)
Estimate the welfare effects of the policy. (Hint: estimate the total surplus
before and after the introduction of the policy.)
Total marks
[25)
First Opportunity Examination
Page 2 of 5
November 2022
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QUESTION TWO
[MARKS]
a. What is an environmental externality? Using appropriate examples, describe a positive
and negative environmental externality.
(4)
b. Briefly explain the Coase Theorem.
(4)
c. Suppose an abattoir is releasing pollution into a nearby aquafer, and the associated
health and ecological damages are not considered in the private market for meat.
Suppose you are Policy Analyst working for the Ministry of Environment Forest and
Tourism, and you have estimated the following marginal benefits and costs for the meat
market.
MPB = 900 - 0.SQ
MPC = 100 + 0.3Q
MEC = 0.8Q
Where Q is the quantity in thousands of carcases produced and P is the price per
carcase.
i. Estimate the quantity and price when the market is in competitive equilibrium.
(3)
ii. Estimate the quantity and price when the market is in efficient equilibrium.
(5)
iii. Suppose a community owned the right to the aquafer, and it is negotiating with
the abattoir that is willing to pay the community to produce more output. For
the 900th unit of output, determine range within which a payment would be
(9)
acceptable to both parties.
TOTAL MARKS
[25]
First Opportunity Examination
Page 3 of5
November 2022
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QUESTION THREE
a. Explain the following concepts related to environmental standards:
i. Ambient standard
ii. Performance-based standard
iii. Technology-based standard
[MARKS]
(6)
b. Suppose the City of Windhoek is attempting to set a water quality standard, where
water quality is measured in percent of heavy metals abated (A), and the marginal
social benefit (MSB) and marginal social cost (MSC) of abatement have been estimated
as follows:
(6)
MSB = 40 - 0.lA
MSC= 36 + 0.25A
The Department of Environment Affairs sets the standard at 20 percent. Is this
standard set efficiently, too stringently, or too leniently? Explain your answer.
c. Suppose there are two power plants that are releasing sulphur dioxide into the air that
exceeds the emission standard. To meet the standard, 100 units of sulphur dioxide
must be abated in total. The two plants face the following abatement costs:
MAC 1 = 600 + 0.1A 1
MAC 2 = 600 + 0.9A2
Where costs are measured in thousands of Namibian dollars.
i. Prove that a uniform standard will not meet the cost-effectiveness criterion.
Explain your answer.
(6)
ii. Determine how the abatement levels should be reallocated across the two
plants to minimize costs.
(7)
TOTAL MARKS
[25)
First Opportunity Examination
Page4 of5
November 2022
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QUESTION FOUR
a. Describe the ecological risk assessment process.
[MARKS]
(6)
b. Suppose the Department of Environmental Affairs (DEA) seeks to introduce a voluntary
emissions trading program, which allows polluters to achieve cost-effective solutions
when meeting clean air requirements in the Environmental Management Act. Suppose
that the DEA's objective for two major polluters is a 40 percent reduction in carbon
monoxide emissions. Suppose further that the two firms face the following costs:
Firm l: TAC1 = 2000 + 3Af
= Firm 2: TAC2 1500 + 6A~
= MAC2 12A2
Where A1 and A2 represents the percentage of carbon monoxide abatement achieved
by firm 1 and firm 2, respectively, and TAC and MAC are measured in thousands of
Namibian dollars.
i. Calculate the TAC and MAC for each firm if a uniform abatement standard were
used.
(S)
ii. Is there an economic incentive for the firms to participate in the trading program.
Explain your answer.
(2)
iii. Quantify the cost savings associated with cost-effective abatement allocation that
could be achieved through trading.
(8)
iv. At what price must each tradable permit be set to achieve the cost-effective
solution.
(4)
TOTAL MARKS
[25)
THE END
First Opportunity Examination
Page 5 of 5
November 2022