Tientenberg 5: Dynamic Efficiency and Sust. D

Question 1

static efficiency

Answer 1

time is not part of the allocation problem (water, solar energy); allocations are not temporally interdependent

Question 2

dynamic efficiency

Answer 2

time is crucial to allocation process (oil as depleteable resource)

Question 3

discount rate equation

Answer 3

= 1/(1+r)^{t}

Question 4

discount rate

Answer 4

discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money.

All future cash flows are estimated and discounted to give their present values (PVs)—the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question

exponential discounting, which values future cash flows as “how much money would have to be invested currently, at a given rate of return, to yield the cash flow in future.