Example: Market Price Method (est.
pollution costs)
Consumer surplus: before after
($10 - $5)/lb x
10000 lb/2 = $25000
($10 - $7)/lb x 6000l b/2 =
$9000
DConsumer
surplus = $9000 - $25000 = -$16,000 (loss in benefits)
Producer surplus:
revenue = $1/lb x 10000 lb =
$10,000
$1.5/lb x 6000 lb = $9,000
(variable)
costs = $0.5/lb x 10000 lb = $5000 $0.6/lb x
6000 lb = $3,600
producer surplus = $1,0000 - $5,000 -
$5,000 $9,000 -
$3,600 = $5,400
DProducer
surplus = $5,400 - $5,000 = $400 (gain in producer surplus)
Net economic
effect (est. pollution
cost)- $16,000 + $400 = -$15,600
i.e., est.
pollution damages = $15,600 or (min.) value of ES provided Òclean waterÓ