Homework Soursea What economic quantity is measured by the length of the da
a: What economic quantity is measured by the length of the dashed line?
b: What is the discount rate in this model? [hint, it is positive]
c: What would happen to period one consumption if the discount rate doubled
d: What would happen to period one consumption if the discount rate were multiplied by negative one. [that is, if it changed sign to be negative]
e: This diagram is written in present value terms, where the present is Period 1. Would the solution change if it were written in Period 2 dollars? Why or why not?
Marginal Net Benefits in Period 1 (dollars per unit) Marginal Net Benefits in Period 2 (dollars per unit) Present Value of Marginal Net Benefits in Period 1 6 5.45 Present Value of Marginal Net Benefits in Period 2 2 Quantity in Period 1 01 2 3 4 5 67 89 10 11 12 13 14 15 16 17 18 19 20 20 19 18 17 16 1514 13 12 11 10 9 8 7 6 5 4 3 21 0 Quantity in Period 2Solution
a: What economic quantity is measured by the length of the dashed line?
marginal benefits
b: What is the discount rate in this model? [hint, it is positive]
cost of extraction
c: What would happen to period one consumption if the discount rate doubled
it would be broken
d: What would happen to period one consumption if the discount rate were multiplied by negative one. [that is, if it changed sign to be negative]
the graph will change
e: This diagram is written in present value terms, where the present is Period 1. Would the solution change if it were written in Period 2 dollars? Why or why not?
![a: What economic quantity is measured by the length of the dashed line? b: What is the discount rate in this model? [hint, it is positive] c: What would happen](/WebImages/27/a-what-economic-quantity-is-measured-by-the-length-of-the-da-1071458-1761561313-0.webp "a: What economic quantity is measured by the length of the dashed line? b: What is the discount rate in this model? [hint, it is positive] c: What would happen")
