WOLLO UNIVERSITY
COLLEGE OF AGRICULTURE
DEPARTMENT OF AGRICULTURAL ECONOMICS
Course: Natural Resource and Environmental Economics
Group Assignment (Weight: 20%)
Submission Deadline: 20/08/2018 E.C.
General Instructions
1. Begin by thoroughly reviewing Question 1 for your assigned topic, as it outlines the core
focus and key content areas for your group discussion.
2. Collaboratively discuss and provide precise, well-reasoned explanations for all remaining
questions allocated to your group.
3. Ensure all subtopics are comprehensively addressed.
4. Cite all sources appropriately using a consistent academic referencing style.
5. Submit your completed assignment by the stated deadline.
❖ Group G5: Ethics, Economics, and the Environment
Focus Question:
Explain the major ethical frameworks and their implications for environmental decision-making.
Address the following key content areas:
▪ Ethical frameworks: naturalist, libertarian, and utilitarian perspectives
▪ Criticisms of utilitarianism in environmental contexts
▪ Inter-temporal distribution of environmental benefits and costs
Additional Questions:
2. Describe the theory of optimal depletion of depletable resources. Under what conditions might
the market mechanism fail to achieve dynamic efficiency in allocating such resources across
generations?
3. Define and explain the concept of Maximum Sustainable Yield (MSY). What are its
assumptions and limitations in resource management?
4. Explain how government intervention can correct market failures in environmental and natural
resource management. Provide specific examples of policy instruments.
5. Distinguish between efficiency and equity in the context of environmental economics. How
might these objectives conflict, and how can they be balanced?
6. What is the Environmental Kuznets Curve (EKC)? Explain its theoretical foundations, empirical
evidence, and policy implications.
❖ Group G1: Pollution Control Instruments
Focus Question:
Compare different policy instruments for pollution control and critically discuss their relative
efficiency in reducing environmental degradation. Address the following key content areas:
▪ Criteria for selecting appropriate pollution control instruments
▪ Concepts of cost-efficiency and cost-effectiveness in pollution abatement
▪ Economic incentive-based instruments
▪ Comparative analysis of: command-and-control regulation, emission taxes, subsidies, and
marketable permit systems
Additional Questions:
2. Describe the theory of optimal depletion of depletable resources. Under what conditions might
the market mechanism fail to achieve dynamic efficiency in allocating such resources across
generations?
3. Why is controlling pollution at the global level particularly challenging? Discuss institutional,
economic, and political barriers.
4. Define sustainable economic development and explain its key environmental implications for
policy and practice.
❖ Group G2: Valuing the Environment
Focus Question:
Analyze different methodological approaches for quantifying the economic value of
environmental goods and services. Address the following key content areas:
▪ Dimensions and theoretical foundations of environmental value
▪ Valuation techniques: Travel Cost Method (TCM) and Contingent Valuation Method
(CVM), including their assumptions, applications, and limitations
Additional Questions:
2. Carefully explain the differences and/or similarities between the following pairs of concepts:
A. Capital budgeting and Cost–Benefit Analysis (CBA)
B. Net Present Value (NPV) criterion and the potential Pareto improvement criterion
C. Private and social discount rates: rationale, determination, and implications for project
evaluation
3. What is the fundamental difference between market price approaches and non-market price
approaches to environmental valuation? Provide examples of each.
4. Briefly explain the meaning of the following concepts in environmental valuation:
o Aversive (or defensive) expenditure
o Use value
o Option value
o Bequest value
o Existence value
5. What are the principal economic uses and contributions of the environment to national and
global economies?
Group G4: Theory of Optimal Resource Extraction of Nonrenewable Resources
Focus Question:
Explain economic models for the optimal extraction and intertemporal allocation of nonrenewable
resources. Address the following key content areas:
▪ Two-period and multi-period extraction models
▪ Extraction behavior and outcomes under competitive versus monopolistic market
structures
Additional Questions:
2. Consider a steel factory located near the Borkena River. The private marginal cost (MC) of
producing corrugated sheets is given by:
MC=8+0.2CS
where CS is the number of corrugated sheets produced. Each unit of output generates pollutant
flows into the river, causing environmental damage valued at 5 birr per unit. This represents an
external cost borne by the wider community, not the firm. The marginal benefit (MB) to society
of each sheet (in birr) is given by:
MB=10−0.8CS
Based on this information:
a) Draw a clearly labeled diagram illustrating the MC, MB, external marginal cost (EMC), and
social marginal cost (SMC) functions.
b) Determine the profit-maximizing output level of corrugated sheets, assuming the firm faces a
marginal revenue equal to the marginal benefit to society.
c) Calculate the output level that maximizes social net benefits (i.e., the socially efficient
outcome).
d) How large would the marginal external cost need to be for it to be socially optimal to produce
zero corrugated sheets?
❖ Group G3: Efficient and Optimal Use of Natural Resources
Focus Question:
Discuss economic strategies for promoting the efficient and sustainable use of natural resources.
Address the following key content areas:
▪ Resource depletion models and their policy implications
▪ Substitutability between natural and produced capital, and concepts of scarcity
▪ Social welfare functions and optimal intertemporal resource allocation
Additional Questions:
2. Consider a two-period model (periods 0 and 1), with analysis beginning at the start of period 0.
The following information is available:
▪ A fixed stock of a non-renewable resource totals 200 million tons at the start of period 0.
▪ Inverse demand functions for the resource in each period are:
𝑃0 = a – b𝑅0 and 𝑃1 = a – b𝑅1
where a =107, b =1, and 𝑅0 , 𝑅1 represent quantities extracted in periods 0 and 1, respectively.
▪ The constant marginal cost of extraction is 5 (in European utility units).
▪ The social welfare function follows a discounted utilitarian form with a social utility
discount rate of 0.1.
Given the objective of maximizing social welfare over the two periods, and subject to the constraint
that at least 104 units of the resource must remain unextracted at the end of period 1:
▪ Calculate the optimal quantities of resource to be extracted in each period (𝑅0 and 𝑅1 ).
▪ Determine the corresponding resource prices in each period.
3. Discuss some of the most pressing global development challenges today, with a specific focus
on their environmental dimensions and implications for sustainable policy.
❖ Group G6: Pollution Control Targets
Focus Question:
Analyze economic models and methodological approaches for determining efficient pollution
control targets. Address the following key content areas:
▪ Distinction between pollution flows and stocks, and their associated damage functions
▪ Concepts of efficient pollution levels and the derivation of emission targets
Additional Questions:
2. What is nuclear pollution? Describe its sources, environmental and health impacts, and
challenges in management and mitigation.
3. Describe the importance of chemical fertilizers in agricultural production, and critically examine
their harmful environmental effects.
4. Why is controlling pollution at the global level particularly challenging? Discuss institutional,
economic, and political barriers.
5. "If the market places a lower economic value on Logo Haik as a preserved natural resource
than as a source of water for irrigation, then all waters should be drained for irrigation."
Discuss this statement critically, applying concepts of economic efficiency and the joint product
condition.
6. While some economists advocate for the creation of private property rights as a mechanism to
protect the environment, many environmental advocates find this approach ethically problematic.
What are the essential issues underlying this dispute? Discuss the theoretical, practical, and ethical
dimensions.
❖ Reminders for All Groups
Foster effective collaboration and equitable participation within your group.
Ensure comprehensive coverage of all assigned subtopics with analytical depth.
Maintain academic integrity: cite all sources using a consistent referencing style (e.g., APA).
Submit your final assignment by 20/08/2018 E.C. without exception.
Note: All questions are designed to encourage critical thinking, application of economic theory to
real-world environmental challenges, and evidence-based policy analysis.