Economics of the environment

8404 Words Oct 24th, 2014 34 Pages
1.Research on the admission fees to national parks has found that the price elasticity of demand for annual visits to Glacier National Park is 0.2. The National Park Service is now considering a 10-percent increase in the admission fee.
a)What will happen to the number of annual visits to Glacier National Park? Solve for a numerical answer.
Ep = % Δ Q/ % Δ P
0.2 = % Δ Q / 10%
% Δ Q = 2%
b)Will the revenues that the park collects increase or decrease? Briefly explain.
The total revenues at the park would increase after an increase in price if the demand was inelastic or decrease after an increase in price if the demand was elastic. As the demand can be considered inelastic (given that Ep <1), I would expect the
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5.Consider the market for hiking boots. This market can be represented by the following supply and demand equations:
Q = 800 – 400P (demand) and Q = – 50 + 100P (supply)
a)Graph the supply and demand curves, labeling the axes clearly. Calculate the equilibrium price and quantity in this market (Q represents a pair of boots), and label these points on the graph. Equilibrium price is $1.70 and equilibrium quantity is 120 pairs of boots.
b)Calculate consumer surplus, producer surplus, and social welfare in the market for hiking shoes.
CS = 1/2*(120*(2-1.7))
= 18
PS = 1/2*(120*(1.7-0.5))
= 72
TS = social welfare = CS + PS
= 90
c)Now suppose that a tax of 50 cents is imposed on each pair of boots. With the tax of 50 cents, find the price that consumers pay, the price that firms receive, and the quantity exchanged. After the tax of 50 cents, consumers will pay a new price of $1.80 for a pair of boots, sellers will receive a price of $1.30, and the quantity exchanged will lower from 120 pairs of boots to 80 pairs of boots.
d)Calculate the total tax revenues. How much of the tax incidence falls on consumers? And how much of the tax incidence falls on producers?
Total tax revenues = Q * tax rate
= 80 * 0.5
= $40
To calculate the tax incidence, find the difference between the old equilibrium price and the after tax price. In this case, the consumers pay $0.10 (or 20% of the tax - $8 total) and
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