The government of a developing country in South-East Asia is considering the construction of a 300MW hydro-electric power generating scheme. This will entail the construction of a dam and the flooding of an area of 2000 hectares of tropical rain forest. The power generated is intended to feed into the grid at times of peak power usage (i.e. the plant will not be generating 24 hours a day and 365 days a year).

You are required to undertake a benefit-cost analysis of the project which considers the impacts detailed below. The analysis is to be done over a period of 60 years using a discount rate of 5%. All values are in 2022 US$.

Question 1 (20 marks)

The dam is mainly constructed of concrete and steel. Over the first 7 years of construction 1.54 million tonnes of concrete will be used (0.22 million tonnes per year). This amount represents a significant proportion of this country's concrete manufacturing capacity and so will have an effect on the market price. Prior to the project the average sale price of concrete is $100 per tonne at an equilibrium quantity of 1 million tonnes. If the project goes ahead it is expected to shift the demand curve for concrete and increase the market equilibrium price to $110 (at an equilibrium quantity of 1.12 million tonnes). At this higher price some existing consumers of concrete will be displaced.

Calculate the costs to the project of the concrete it requires using both a diagram and the Harberger equation.