Exam (elaborations)
ECS 2606 Comphrehensive Exam Pack (Q&A )
- Institution
- University Of South Africa (Unisa)
Past Question Papers and Assignments dating back from 2015 to 2021 answered: applicable graphs and illustrations included
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ECS 2606 EXAM PACK 2022-PAST QUESTION PAPERS AND
ASSIGNMENTS ANSWERED
Lebogang Ngobeni
,1. Explain and graphically illustrate how an improvement in technology could decrease the total
cost of production [10]
• Technology refers to the productive potential of the methods and machines that are
employed within the production processes.
• In Environmental Economics, technological change plays an important role because
of its ability to providing various ways to produce goods and services with fewer
environmental side effects.
• Furthermore, technological change provides superior ways of handling the
quantities of production residuals that remain.
• In simple cost model, the technological change shifts the marginal cost curve
downward. This enables the organisation to determine how much total production
will be reduced because of technological change. .
• The technological progress makes it feasible to produce a given increase in output at
a lower marginal cost, as this reduces the total production cost.
• The total annual cost of producing q* is equal to area b. Therefore, the reduction
cost is made possible by the technological change which is equal to area a.
The Technological Improvement Graph
2. The second last block in figure 2.3 (Field & Field; 2016:32) incorporates the role of human
values. Why are human values so important in this chain of environmental events? [10]
• The best part of Environmental Economics is determining the relative values that
humans place on the different environmental outcomes.
• Human values are important in the chain of environmental events because human
beings do not have amorphous preferences over all possible outcomes of the
economical/ environmental interactions; human beings prefer certain outcomes
over others- such as the “willingness-to-pay” approach as this shows that individual
choices may differ in accordance with the value placed on an environmental
amenity. For example, some people may not see the value of preventing
deforestation as their economic wellbeing may depend on the cutting of trees, i.e.,
economic wellbeing takes precedence over environmental protection.
,3. Graphically illustrate and explain the equimarginal principle by means of a factory that has two
plants, one with steeply increasing marginal costs and one with steeply increasing marginal
costs and one with more slowly increasing marginal costs.
• The equimarginal principle is better interpreted by a case of a firm producing a certain
product and assume that the firm’s operation is divided between two different plants.
• Assume there is a single power company that’s owns the two different generating plants.
• Each plant produces the same item, so that the total output of the firm is the sum of what it
produces in the two plants.
• Assume that the plants were built in different times and makes use of different technology.
• The old one Plant A uses older technology. It has a marginal cost curve that starts relatively
low but rises steeply as production volumes increases.
• The new plant, Plant B uses newer technology. It has higher marginal cost at low output
levels, but marginal costs do not rise as steeply as production processes.
• Now consider a situation in which these two plant firms want to produce a total output of
approximately 100 units; what is the quantity of the units each plant can produce at minimal
costs?
• Ascertain if it would be best to divide the units equally and produce 50 units in each plant at
minimal costs.
• This is shown in Figure 2 at an output of 50- Plant A has marginal cost of R12 whereas plant
B has marginal cost of R8.
• The total production costs are the sum of total costs at each plant or (a+b+c) +d
• Note- the total cost of the 100 units can be decreased by reallocating production.
• For example, reduce the production in Plant A by 1 unit and the cost will decrease by R12;
increase production in Pant B by one unit and the cost will increase by R8.
• The total output will still be 100 units, but there will be a cost saving of R4 (R12-R8=R4); the
total costs- sum of the costs in the two plants would have decreased.
• Granted that the marginal costs in the two plants differ from one another, the reallocation
of production away from the high marginal cost plant and towards the low marginal cost
plant will continue which will lead to a reduction in total costs.
• The total costs of producing 100 units in the two plants will be at the minimum only when
the marginal costs of the two plants are equal, hence the term used is called the
equimarginal principle.
• In figure 2, when the output is 38 units in Plant A and the output in in Plant B is 62 units.
• Total costs in geometric terms are now a+(d+e)
• The equimarginal principle states that, if you have multiple sources to produce a given
product or to achieve a given goal and you want to minimize the total cost of producing a
given quantity of that output, distribute production in such a way as to equalize the marginal
costs between the production sources.
, The Equimarginal principle graph
4. Explain with the aid of production possibility curves how your country could limit the
production and consumption of future generations by current irresponsible consumption and
production
• The environment is an asset that produces important services for humans and non-
organisms
• The ability of an environment to produce these services can be degraded. The concept of
sustainability as a criterion for assessing decisions that have environmental implications has
taken centre stage in recent years.
• Sustainability refers to the act of making decisions in the short run that would not have a
detrimental effect in the long run
• This can be demonstrated in terms of trade-offs between conventional economic output and
environmental quality
• The Production Possibility Curve is a curve that shows the combinations of two things a
society may produce at any time given its resources and technological capabilities
• The vertical Axis has an index of the cumulative output of an economy that is the total
market value of conventional economic goods traded in an economy in a year
• The horizontal axis has an index of environmental quality, derived from data on different
dimensions of ambient environment such as airborne sulphur dioxide concentrations/ noise
levels and water quality data.
• The curved relationships show different combinations of these two outcomes marked
output and environmental quality- that are available to a group of people who have a fixed
endowment of resources and technology with which to work with.
• The exact shape and the location of the production possibility curve are determined by the
technical capacities in the economy, together with the ecological facts meteorology,
hydrology of the natural system in which the society is situated.
• For example, if the current level of economic output of C1, they must trade off
environmental quality back to the level e2
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