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Quantitative Methods in
Economics, Business and Finance

Session 1, 2018

Due June 15th, 2018, 4 p.m.

Department of Economics


Instructions: Students have been assigned different versions of the assignment: you need to
download your own version of the assignment by using your own login access to
the ECON131 iLearn webpage.

There are four parts (A, B, C and D) and 22 questions in the assignment. Answer ALL
parts and ALL questions, clearly and in your own words. ALL relevant working must
be shown. Your assignment should be typed but the equations can be hand-written.
There are to be NO appendices in your assignment.

Due date: On or before 4 p.m. Friday, June 15th, 2018.

Marks: The total mark for the assignment is out of 100. Most of the 22 questions is worth 4
marks, except Part C Q1 and Part D Q3 which are worth 5 marks each. A further 10
marks will be awarded for the neatness, conciseness and clarity of answers.

Submission: You will be handing in your assignment in the ECON131 SUBMISSION BOX IN BESS.
A soft copy also needs to be uploaded to “Turn-it-in” (via iLearn).

Please make sure you hand in your assignment using the attached cover page.
Marks will be deducted if you attach the wrong cover page. You must keep a copy
of your assignment.

Late submissions will be accepted up to 48 hours after the submission deadline. There
will be a deduction of 10% of the total quality-based marks for EACH 24 HOURS period
or part thereof that the submission is late (for example, being 25 hours late in
submission will occur 20% mark penalty). This penalty does not apply for the cases in
which an application for special consideration has been made and applied. Please see
BESS for advice on this procedure. The penalty for unauthorised late assignments has
been explained in the Unit Guide which appears on iLearn. The student should contact
the Unit Convenor via the appropriate link on iLearn to discuss the alternate
procedure for submission.

Plagiarism: Each assignment must represent the student's own work. In particular, this means
that the written answers submitted by the student should be composed by that
student. The copying of another student's answer or textbooks, or part thereof, is
clearly regarded as plagiarism. All assignments will be scanned by software that
detects plagiarism. Cases of plagiarism will be dealt with severely. For further
information on plagiarism and how to avoid it, please refer to the unit outline.

Part A: Ecological Footprint (EF)

The Ecological footprint (EF) measures how much of the regenerative capacity of the biosphere is used up by
human activities. It is the sum of productive land and water area required to support the population and
provide the resources the population consumes, absorb its waste and provide infrastructure1.

Biocapacity is a measure showing the capacity of biosphere to regenerate and provide for life. More detailed
definitions are given on page 5.

Figure 1: Humanity’s ecological footprint by component 1961-2012

Figure 2: Ecological Footprint and Biocapacity per capita 1961-2012

1 Stiglitz et al., 2009, p. 244,
Figure 3: USA: Ecological footprint and Biocapacity per capita 1961-2012

1. According to the EF, is the human population living at, beyond or below the Earth’s natural biocapacity?
For how long has this been the case? Is this sustainable? (4 marks)

2. According to the EF, is the US population living at, beyond or below USA’s natural biocapacity? For how
long has this been the case? Is this sustainable? (4 marks)

3. If you assume that EF grows at a constant yearly rate, what is the approximate slope of the EF
relationship with time for USA? And what is its units? Give the equation of, and sketch this line, with
EF on the vertical axis and year on the horizontal axis. (EF for 2012 is 8.2 and for 1961 was
approximately 8.1). (4 marks)

4. If you assume that biocapacity grows at a constant yearly rate, what is the approximate slope of the
biocapacity relationship with time for USA? And what is its units? Give the equation of, and sketch this
line, with biocapacity on the vertical axis and year on the horizontal axis. (biocapacity for 2012 is 3.8
and for 1961 was approximately 5.2). (4 marks)

5. If this trend continues, what will EF and biocapacity be in 2050? (Hint: use your equation from questions
3 and 4.) What will biocapacity minus EF be in 2050? Will there be a deficit or reserve? (4 marks)

6. Use the data presented in Figure 1 to suggest a policy to make land use sustainable. (4 marks)

Ecological Footprint and Biocapacity Background Information2

Footprint and biocapacity accounting helps us answer the basic research question: How much do people demand
from biologically productive surfaces (Ecological Footprint) compared to how much can the planet (or a region's
productive surface) regenerate on those surfaces (biocapacity)?

What is the Ecological Footprint? What is it composed of?

The Ecological Footprint is the area of land and water it takes for a human population to generate the renewable
resources it consumes and to absorb the corresponding waste it generates, using prevailing technology. In other
words, it measures the "quantity of nature" that we use and compares it with how much "nature" we have.

The components of Ecological Footprint include:

Cropland: Cropland is the most bioproductive of all the land-use types and consists of areas used to produce
food and fibre for human consumption, feed for livestock, oil crops, and rubber. The cropland
Footprint includes crop products allocated to livestock and aquaculture feed mixes, and those
used for fibres and materials. Due to lack of globally consistent data sets, current cropland
Footprint calculations do not yet take into account the extent to which farming techniques or
unsustainable agricultural practices may cause long-term degradation of soil.
Forest land: Forest land provides for two competing services: the forest product Footprint, which is calculated
based on the amount of lumber, pulp, timber products, and fuel wood consumed by a population
on a yearly basis; and the carbon Footprint, which represents the carbon dioxide emissions from
burning fossil fuels in addition to the embodied carbon in imported goods. The carbon Footprint
component is represented by the area of forest land required to sequester these carbon
emissions. Currently, the carbon Footprint is the largest portion of humanity’s Footprint.
Fishing grounds: The fishing grounds Footprint is calculated based on estimates of the maximum sustainable catch
for a variety of fish species. These sustainable catch estimates are converted into an equivalent
mass of primary production based on the various species’ trophic levels. This estimate of
maximum harvestable primary production is then divided amongst the continental shelf areas of
the world. Fish caught and used in aquaculture feed mixes are included.
Grazing land: Grazing land is used to raise livestock for meat, dairy, hide, and wool products. The grazing land
Footprint is calculated by comparing the amount of livestock feed available in a country with the
amount of feed required for all livestock in that year, with the remainder of feed demand assumed
to come from grazing land.
Built-up land: The built-up land Footprint is calculated based on the area of land covered by human
infrastructure: transportation, housing, and industrial structures. Built-up land may occupy what
would previously have been cropland.

What is Biocapacity?
Biocapacity serves as a lens, showing the capacity of biosphere to regenerate and provide for life. It allows
researchers to add up the competing human demands, which include natural resources, waste absorption, water
renewal, and productive areas dedicated to urban uses. As an aggregate, biocapacity allows us to determine how
large the material metabolism of human economies is compared to what nature can renew.

What is a global hectare (gha)?

A global hectare is a biologically productive hectare with world average productivity. Because each unit of space
harbours a different portion of the global regenerative capacity, each unit is counted proportional to its global
biocapacity share. For this reason, hectares are adjusted proportionally to their productivity and are expressed in
global hectares

2 Definitions Source: Global Footprint Network

Environmental Resource Management Motivation
(Motivation for Parts B, C and D)

The Atlantic cod is a massive fish that can grow up to 2m in length, weigh up to 96 kg, and can live up to 25
years. Before WWII, there were more than a million tonnes of Atlantic cod living in the Arctic. Due to
overfishing, by 1990 this number declined to 118,000, on the brink of collapse.

Humans depend on biotic resources like fish, animals and forests. Ensuring these resources are not over-
exploited is absolutely vital, not just for the health of the planet, but for our own survival. Finding the right
level at which to exploit these resources is important: on one hand, if harvesting quotas are set too low, millions
of people might go hungry. But if resources are over-exploited, there is the risk that the population may
collapse entirely, with disastrous consequences for human livelihoods.

In this assignment, we analyse three models of biological populations, and find methods for working out how
to exploit them sustainably.

Part B: Planet Issues – Unlimited Population Growth

One way to think about the growth of some biomass – whether a petri dish full of bacteria or a river full of fish
– as some fixed proportion of the existing population. The unlimited population growth model is a simple
model which assumes that, in each period, some fixed proportion 𝑏 of a population will reproduce, and some
fixed proportion 𝑑 will die.

The model describes the evolution of a population over time 𝑡.

𝑁(𝑡) = 𝑁0 𝑒 (𝑏−𝑑)𝑡 (1)

where 𝑁0 is the population at time 𝑡 = 0.

1. If the initial population is 𝑁0 = 3000, the annual birth rate 𝑏 = 0.04 (4% exponential birth rate) and
annual death rate 𝑑 = 0.03 (3% exponential death rate), what is the population after 1 year? Explain
this result. (4 marks)

2. Find an expression for the growth rate (population change) of the population in terms of time and the
parameters. Hint: differentiating with respect to time gives a rate of change. (4 marks)

3. If 𝑑 < 𝑏, will the expression you found in the previous part be positive or negative? How would you
interpret this fact? (4 marks)

Part C: Planet Issues – Unlimited Population Growth with

The model in equation (1) in Part A describes a population untouched by humans: there is no harvesting. We
can model what happens if we harvest 𝐻 individuals from the population each period. The unlimited
population growth with harvesting model is given by

𝐻−𝐻𝑒 (𝑏−𝑑)𝑡
𝑁(𝑡) = 𝑎𝑒 (𝑏−𝑑)𝑡 + (2)

where 𝑏 is the birth rate, 𝑑 is the death rate, and 𝐻 is the number of individuals taken from the population in
each period.

1. Confirm that the rate of population change is

= (𝑏 − 𝑑)𝑁(𝑡) − 𝐻. (3)
(5 marks)

2. Give the meaning of the expression in equation (3). (4 marks)

3. Let 𝑁0 = 𝑁(0) = 3000, 𝑏 = 0.06 and 𝑑 = 0.02. At what rate can the population be harvested
sustainably? Hint: The sustainable harvest, 𝐻, will be the value that causes no change in the overall
population, i.e. = 0. (4 marks)
4. Suppose an ecosystem is being sustainably harvested at exactly its replacement rate, and the
population is constant. Now suppose the population experiences a brief disease epidemic, which
causes 6% of individuals to perish. What will happen to the population if harvesting continues at the
same rate? (4 marks)

5. Suppose a population of fish that follows this model is being harvested sustainably, as before. What
will happen in the long run if, one day, a fisherman decides to throw one of the fish back? (4 marks)

6. This type of model is often said to have a “knife-edge” equilibrium. Explain what this means.
(4 marks)

7. Governments often levy fishing quotas in areas where populations are at risk. Does this model shed
any light on the effectiveness (or otherwise) of these policies? (Hint: what if someone cheats?)
(4 marks)

Part D: Planet Issues – The Verhulst model of ecological growth

We now consider a slightly more sophisticated version of the above model. Leaving harvesting to one side for
a minute, we will consider what happens when there is a limit to growth. The previous model assumed that
populations could continue to grow indefinitely. Empirical research suggests that there tends to be a limit to
the size of population that an environment can support; we call this limit the carrying capacity 𝐾.

A model linking these ideas was first proposed by a French mathematician Pierre Verhulst in 1838. The
Verhulst model can be written as:

𝑁0 𝑒 𝑟𝑡
𝑁(𝑡) = 𝑁 (𝑒𝑟𝑡−1)
1+ 0

where 𝑁0 is the initial population level. For simplicity, we’ll write the net reproduction rate simply as 𝑟, rather
than in terms of births and deaths.

1. What is the growth rate if the initial population is zero? (4 marks)

2. When the population is initially at its carrying capacity, i.e. 𝑁0 = 𝐾, what is the population at time 𝑡?
How does the population level change when the growth rate r increases? (4 marks)

3. Differentiate (4) to show that the rate of population growth at time t is

𝑑𝑁(𝑡) 𝑁(𝑡)
= 𝑟𝑁(𝑡) (1 − ) (5)
𝑑𝑡 𝐾

Remember to use the quotient rule to differentiate (4). You will find it easier if you carefully look for
the terms that you expect to see in the final expression, and factor those out. (5 marks)

4. Does the population grow faster when it is above the environment’s carrying capacity (N>K), or below
it (𝑁 < 𝐾)? (4 marks)

5. A pond has a carrying capacity of 500,000 fish. Its population this year is 450,000 individuals. If the
reproduction ratio is 𝑟 = 5%, and the population follows the Verhulst population model, how many
fish can be harvested per year, leaving a constant population? (4 marks)

6. Suppose that, due to unlicensed fishing, the population falls by half, to 225,000. How many fish can
be harvested per year, in order to maintain a stable population? Explain the difference between the
previous question and this question. (4 marks)


Version 3



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