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AGEC 5090 FINAL WITH COMPLETE
SOLUTIONS!!
Self-extinction Hypothesis - Answers population growth will exceed land's potential to supply sufficient food, Thomas Malthus (1798), Rome, Mayans, Easter Island closed system - Answers a system where there are no inputs and outputs of energy and matter from outside the system first law of thermodynamics - Answers conservation of energy, energy and matter can neither be created or destroyed, energy and matter flowing into economic system either accumulates or returns as waste second law of thermodynamics - Answers entropy law, the amount of energy not available for work increases in time, a closed system will run out of energy, conversions are never 100% efficient--waste heat created positive economics - Answers describing what is, what was and what will be, describe impacts of trade on environment normative economics - Answers attempting to answer what ought to be, "should we do it or not", answers whether trade is desirable
cost-benefit analysis - Answers B>C--suport the action, B<C-- oppose the action total benefits - Answers the value of total willingness to pay, which is the area under the market demand curve from the origin to the allocation of interest. total costs - Answers the sum of marginal opportunity costs, area under the marginal cost curve willingness to pay - Answers the maximum you are willing to pay/sacrifice, in general, the more units you buy, the less you are WTP to get yet another unit of the same thing Demand curve - Answers the quantity of a good or service that the individual in question would demand (i.e.,purchase and consume) at any particular price. will buy until MWTP hits price normal good - Answers holding price constant, an increase in income leads to an increase in quantity demanded inferior good - Answers holding price constant, an increase in income leads to a decrease in quantity demanded luxury good - Answers demand rises more than proportionately as income rises
stopping rule - Answers produce more units as long as the price is higher than the marginal cost, supply curve=MC curve aggregate supply curve - Answers horizontal sum of individual supply curves supply curve shifters - Answers technology, regulations, input supply chain, costs of inputs producer surplus - Answers gross revenues-total variable costs, area under price line and above MPC curve, short run=PxQ-variable costs, long run=PxQ-VC-Fixed cost+rent=profits+rent equimarginal principle - Answers allocate production so that the MC of the last unit produced at each plant is identical across plants marginal private benefit - Answers private MWTP, not the social marginal social benefit - Answers MSB=MPB-MEC, if the external cost is .1, the MSB curve would be .1 below the demand curve market efficiency - Answers criteria for judging how well an economy functions
efficiency - Answers maximizing net benefits no matter to whom they accrue, efficient if social surplus=net benefit=total benefit-total costs, subjective notion markets - Answers institution in which buyers and sellers carry out mutual agreed-upon decisions, used because of incentives--rewards and punishes correctly, Adam smith's invisible hand, process adjust freely Pareto Optimality - Answers cannot increase total net benefits without making someone worse off Pareto improvement - Answers making some better off w/o hurting anyone total social surplus - Answers =total benefit-total cost=abc- c=PS+CS=a+b, more general way to measure surplus--maximize when looking for efficiency Invisible Hand - Answers Adam Smith, markets w/o externalities or governmental intervention will allocate resources efficiently-supply and demand market failure - Answers markets equate private MC with private MWTP, efficiency requires equating social values not private
David Ricardo - Answers price of land is determines by the least fertile marginal unit of land, competition doesn't erode profits bc supply of land is limited--lower prices only reduce supply, can only expand prod. by bringing in less fertile land externality - Answers impact on a party that is not directly involved in the transaction, exist when the welfare of an agent depends on their activities and activities of some other agent positive externality - Answers activity imposes benefits on a third party, markets undersupply resources negative externality - Answers imposes costs on a third party, markets oversupply pecuniary externality - Answers when the external effect comes from altered prices private costs - Answers enter balance sheets, decisions made based on those, want to keep low, associated with accounting costs, market cost of various inputs to production pigovian tax - Answers tax on production, internalize production externalities
open access - Answers nobody owns or exercises control over the resources, non-exclusive and rivalry in consumption non-exclusive - Answers open to all people without restrictions rival in consumption - Answers your use of it leaves less for me Coase Theorem - Answers if institutional restraints on property rights are removed, and property rights are fully assigned to individuals, then new markets for non-marketed goods can be created, if property rights are binding, then parties will bargain over outcomes--leads to efficiency transaction costs - Answers costs of reaching and enforcing agreements d. subsidizing irrigation water supply - Answers which of the following policies would not reduce water use? a. full marginal-cost pricing b. precision agriculture c. reusing wastewater for industrial uses d. subsidizing irrigation water supply b - Answers the Riparian Rights doctrine means that a. gov't sells the water to the highest bidder
c. Use Value + Nonuse Value d. Use Value + Option Value + Nonuse Value e. Use Value + Judgment Value + Nonuse Value C - Answers A local forest provides habitat for deer that are shot by hunters. The hunters receive what type of benefit in this case? a. Option value b. Existence value c. Use value d. Non- use value e. Bequest value D - Answers A decision to postpone commercial development of an undisturbed parcel because farming on it might be more profitable in the near future shows an example of what type of value? a. Use value b. Non- use value c. Bequest value d. Option value A - Answers If Benefit-Cost analysis is either not available or not sufficiently reliable (not enough data to calculate), what alternative analyses are available for evaluating environmental policies? a. Cost Efficiency Analysis and Impact Analysis
b. The benefit-cost analysis is the only way to evaluate environmental projects and policies c. Scarcity rent analysis d. Cost Efficiency Analysis only e. Impact Analysis only C - Answers Asking people to state their economic values (like the Willingness to Pay) in a survey is an example of what type of economic valuation? a. Hedonic pricing b. Travel cost method c. Contingent valuation d. Production function valuation e. Avoided cost valuation D - Answers In environmental valuation, Hedonic property value approach, a. infers values of recreational resources by regressing the price of fish tackle on the value environmental valuation, Hedonic property value approach of fish caught b. is the same as contingent valuation models c. infers values of recreational resources by determining how much visitors spent getting to
d. Production function valuation e. Engineering cost valuation D - Answers As a method for evaluating benefits and costs that happen at different times, present value calculations _____________________. a. determine the discount rate of future benefits. b. determine net benefits of a project in a given year. c. make it unnecessary to use a discount rate. d. generate comparable estimates of costs and benefits that are received in different time periods. e. generally do not differ from the current value calculations. C - Answers In environmental policy making, private and social discount rates may differ because... a. of the risk-free cost of capital. b. of arbitrage in the financial markets c. estimation of benefits from environmental projects usually places a greater value on future generations d. private decision-makers (businesses) and social decision-makers (governments) agree on market outcomes.
e. banks charge private individuals the same interest rate as they charge social groups. D - Answers What is LEAST problematic when using the above methodology of valuing human life? a. Problems with establishing cause and effect relationships b. Credibility of the probability of death estimates c. Credibility of reporting personal willingness to pay (WTP) d. Coasian bargaining between the city and the emission source B - Answers Improving air quality in a city would not only save lives but also improve health, productivity, and enjoyment of live. Would this be considered a a. Primary effect b. Secondary effect B - Answers If the resource is not scarce (abundant), what is the Net Marginal Benefit in periods 1 and 2? HINT: Net Marginal Benefit = Price (i.e., Willingness to Pay) - MC (of extraction) ) 4 a. MNB=20-2Q b. MNB=16-2Q c. MNB=12-2Q d. MNB=8-2Q B - Answers What is the optimal extraction (consumption) in periods 1 and 2?
B - Answers Why was Hubbert wrong trying to apply his "Peak Oil" theory to the world oil production? he made wrong calculations b. the spread of new technologies, and new discoveries have shown time and again that production can be increased and there is no shortage in sight c. he did not anticipate the advent of renewable energy sources C - Answers How do the estimates of the world's conventional oil resources (Original Oil in Place) compare to those of the unconventional oil resources? a. 4-5 trillion barrels to 5 trillion of unconventional b. 5-7 trillion barrels to 8 trillion of unconventional c. 7-8 trillion barrels to 9 trillion of unconventional d. 10-15 trillion barrels to 20 trillion of unconventional C - Answers What is the phenomenon that geologists call "reserve growth"? a. most oil fields have produced much less than the initial estimates of their reserves b. most oil fields have been depleted c. most oil fields have produced much more than the initial estimates of their reserves d. most oil fields have been depleted but the discovery of new ones more than made up for that
A - Answers Why, for many years, it was not perceived to be wise to explore new areas or invest in new oil extraction technologies? a. Price of oil was too low b. The demand for oil was low and did not grow c. They did not believe new deposits will be discovered d. Oil companies believed oil will be replaced with renewable energy D - Answers Which of the following is NOT true about the Hotelling Rule? a. Net price has to rise at the rate of interest as a condition of equilibrium b. Otherwise, the present value of the net price that could be received from selling in some periods would be higher than in other periods. c. Hotelling Rule ensures that the last unit extracted in any time period earns the same return (in present value terms). d. Hotelling rule ensures that the social discount rate equals the interest rate and that there are no sources of market failure such as externalities or incomplete property rights. d. Hotelling recognized that he had constructed a highly stylized and, in some ways, overly simplified model of mining. A - Answers What kind of price paths for non-renewable resources did they find early on? a. U-Shaped b. Inverse U-shaped c. Declining all the time
D - Answers What does the paper say about the oil in the Gulf of Mexico? a. They say the oil fields there have been almost depleted b. They say one should not drill in the Gulf because of the risk of oil spills c. They find that technology does not keep up with the declining reserve quality d. They find that technology offsets the declining reserve quality A - Answers Why would it be profit maximizing? a. because Marginal Revenue = Marginal Cost b. because Average Cost = Marginal Cost c. because Price = Average Cost d. because Price = Marginal Cost A - Answers Are monopoly prices higher than competitive prices? a. Yes b. No B - Answers Which one of the following is an example of demand- side water management? a. Expanded development of groundwater aquifers b. Increasing water prices c. Desalination d. Building large dams
e. Building small dams A - Answers Which one of the following policies would not reduce water use? a. Subsidizing irrigation water supply b. Full marginal-cost pricing c. Precision agriculture d. Reusing wastewater for industrial uses e. Removing water subsidies E - Answers Most of the world's fresh water is used for ... a. Manufacturing b. Cooling power plants c. Municipal supplies d. Factories e. Agricultural purposes a - Answers Which one of the following statements is true? a. The demand for water is price inelastic for both residential and irrigation uses b. The demand for water is price elastic for both residential and irrigation uses c. The demand for water is price elastic for residential uses but price inelastic for irrigation uses
