Economics 251 – Spring 2003

Homework Chapter 1 – Economics: the core Issues

 

Suppose a forested watershed can support both habitat for a salmon fishery (spawning), and forest harvesting for lumber production.  The more land that is logged for lumber production, the greater the impact on streams in the watershed that support fisheries habitat.  The more forest land that is left in a natural state (not logged), the lesser the impact on forest streams, which increases the ability to support salmon reproduction, and fisheries harvest downstream realized by fishermen.

 

The following table illustrates the production possibilities of this forested watershed. 

 

                                                Salmon                                                   Forest

Option                                    Harvest (000's pounds)                       Harvest (000's board feet)

A                                             0                                                              500

B                                             10                                                            450

C                                             20                                                            350

D                                             30                                                            200

E                                              40                                                            0

 

(1)                 Draw the production possibilities curve for this watershed.

 

(2)                 What is the opportunity cost of the first 10,000 pounds of salmon (per pound) in terms of forest harvest foregone per board foot? (from Option A to Option B)

 

(3)                 What is the opportunity cost of the last 10,000 pounds of salmon (per pound) in terms of forest harvest foregone per board foot? (from Option D to Option E).

 

Suppose more effective salmon habitat management techniques are developed and applied in this watershed.  The productivity of salmon production is now increased by 50 percent.  (Multiply each value for the salmon harvest in the table above by 1.5).

 

(4)   Draw the new production possibilities curve in reference to the old one in (1).

(5)     Now, what is the opportunity cost of the first 10,000 pounds of salmon (per pound) in terms of forest harvest foregone per board foot?

(6)     Now, what is the opportunity cost of the last 10,000 pounds of salmon (per pound) in terms of forest harvest foregone per board foot? (from Option D to Option E).

(7)     In both cases, before and after productivity change, moving from A to E, there is a(n) increasing/decreasing (choose one) opportunity cost of salmon in terms of forest harvest foregone.

(8)     Productivity change has what impact on the opportunity cost of salmon?