Snake River. The policy would increase electricity generation by 55

million kWhs each year. The price of electricity is $0.12 per kWh. The proposed

policy would reduce water for irrigation and reduce annual wheat yields by 1.1

million bushels of wheat. The price of wheat is around $5 per bushel. The

proposed policy would also decrease habitat for salmon resulting in 20,000 fewer

salmon per year. Researchers used the travel cost method to estimate the value of

salmon is $40 per salmon.

a. Calculate the benefit of the policy. Explain your calculations.

b. Calculate the cost of the policy. Explain your calculations.

c. Should the policy be adopted? Explain.

d. Who benefits and who is harmed by the policy?

2) (10 pts) The marginal benefit of coffee is given by

where is

=

15

3

thousand cups of coffee and

is in $ per cup. Suppose the private marginal

cost is

and the external cost is $1 per cup, so the social marginal

=

2

6

cost is

or

.

=

2

6

+

1

=

2

5

a. Calculate the market equilibrium. Explain your calculation.

b. Calculate the efficient coffee consumption. Explain your calculation.

c. Calculate the deadweight loss of the market equilibrium. Explain your

calculation.

3) (5 pts) Suppose the interest rate is 3%.

a. Calculate the present value of a $500 benefit that occurs in 20 years.

b. Calculate the present value of a $500 benefit that occurs in 40 years.

c. How does the present value change as the benefit occurs more distant in

the future?