AREC365 Lecture Notes - Lecture 18: Equilibrium Point, Net Present Value, Externality
27 Dec 2015
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Lecture 18. Sustainable Resource Use 2 2015-10-23 6:58:00 PM
A two period model
The picture is in your phone
what we don’t use in period 1 gets used in period two
We discount the curve to get everything under the NPV units
MNB2= 6 – 0.4 Q2
PVMNB2= (6- 0.4 Q2)/ (1 + 0.1)
Just listen to his whole thing again
The point where the present net value curve intersects, becomes our optimal
equilibrium point
Period 1:
MnB1= 6 – 0.4 Q1= PV MNB1
Period 2:
MNB2= 6- 0.4 Q2
PVMNB2= (6-0.4Q2)/(1.1)
PVMNB1= PVMNB2
We have a resource constraint where Q1+ Q1 have to add up to 20
take a picture of the math
You find MNB by plugging the Q1 in to 6- 0.4Q1= which will be 1.905
P1= MNB 1 + MC
• Find out how that is the case by subbing it in
• MNB= 1.905
• MC= 2
• P1= 3.905
MNB2= 2. 095
Total PVNB= 76.366 this is the optimum
{10, 10} : Total PVNB= 76.364
Under {10,10} split
Surplus in one= Surplus in two= 40
Under efficient solution
• no discounting
• surplus 1= 40.466 (area under the curve)
• Surplus 2= 39. 512
• There is a declining welfare, so not enough sustainability
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
The picture is in your phone what we don"t use in period 1 gets used in period two. We discount the curve to get everything under the npv units. The point where the present net value curve intersects, becomes our optimal equilibrium point. We have a resource constraint where q1+ q1 have to add up to 20 take a picture of the math. You find mnb by plugging the q1 in to 6- 0. 4q1= which will be 1. 905. P1= mnb 1 + mc: find out how that is the case by subbing it in, mnb= 1. 905, mc= 2, p1= 3. 905. Under efficient solution: no discounting, surplus 1= 40. 466 (area under the curve, surplus 2= 39. 512: there is a declining welfare, so not enough sustainability. Period one should save (sh. 466) some of their resources for period two. Earn 10% interest, so that becomes 0. 466 * 1. 1= sh. 513. This resource use issue can become a type of externality.
