University Quiz: EC5218 Natural Resource Economics Assessment Item 1

This document provides solutions to the EC5218 assessment item 1 online quiz, focusing on natural resource economics. The quiz covers topics such as contingent valuation, resource extraction under the Hotelling rule, marginal user cost, and the impact of time on extraction decisions. The solutions include justifications for each answer, explaining the economic principles behind the correct choices. The quiz involves calculations to determine optimal extraction quantities given price, marginal extraction costs, and discount rates. The document aims to help students understand and apply key concepts in natural resource economics, including how to determine the optimal extraction path of a resource over time.

EC5218 assessment item 1 online quiz
Need justification for every Answers.
Question 1
point
Contingent valuation always works True/False
1. True
2. False
Question 2
points
The total quantity of natural resources to be extracted is 100 units, the rate of return is 5%pa the price now
is $20 per unit, the price in 1 year is $30 per unit and the marginal extraction cost for both points in time is
the same $10 per unit. How many units should be extracted now?
Choose at least one correct answer
1. Answer 1
Approximately 66 units
2. Answer 2
Approximately 100 units
3. Answer 3
Approximately 0 units
4. Answer 4
Approximately 35 units
Question 3
point
To get the marginal user cost, for Question 2 above, it is simply price less the marginal extraction cost.
Question 4
point
Hotelling rule states that "the value of extracting a quantity of resources now and then earning interest on it
such that the value grows to a future point in time" is equal to "the value of extracting a quantity of
resource at the same future point in time".
Question 5
points
For Question 2 above, if we allow extraction to occur in year 2 (as well as now and year 1 as in question 2)
then the quantity extracted now doesn't change.
1. True
2. False
1. True
2. False
1. True
2. False

Question 6
points
The economic profit of extracted resources in year 1 should not be discounted using a 5%pa discount rate
to get its present value.
1. True
2. False
Question 7
points
The total quantity of natural resources to be extracted is 100 units, the rate of return is 5%pa the price now
is $20 per unit, the price in 1 year is $30 per unit, the price in 2 years is $50 and the marginal extraction
cost for all points in time is the same $10 per unit. How many units should be extracted in 2 years?
Choose at least one correct answer
1. Answer 1
67
2. Answer 2
22
3. Answer 3
12
4. Answer 4
0