The benefit of cutting down a forest is $1 million now. The environmental cost of that harvest is $10/year

forever.

a) (5 points) At a 0 percent discount rate, are the benefits of harvesting greater than the costs? Why or

why not?

b) (10 points) The private market discount rate is 4 percent, but the government has decided to use

a social discount rate of 0 percent. What is the opportunity cost associated with using the social

discount rate in this situation? Explain.