Final Exam EC3545 Spring, 1997
 

True False

1. Although the United States has been the world's number one timber producer since World War II, U.S. forests have experienced an increase in volume in the past fifty years and have maintained roughly the same area over the past seventy-five years, according to TSOTP.

2. Only about half of the timber harvested in the United States, Europe, and Nordic countries comes from second-growth/plantation forests, says TSOTP.

3. According to TSOTP documented animal extinctions peaked in the 1930s, and the number of extinctions has been declining since then.

4. According to TSOTP 30 percent of agricultural water will need to be transferred from agricultural to urban areas in the western United States to meet urban needs for the next 25 years.

5. Eliminating laws against water marketing and establishing private water rights would give consumers an incentive to use water more efficiently.

6. The commercial harvest of ocean fisheries peaked in the late 1940s and is currently about half of that peak amount.

7. The world-wide problem of overfishing has its source in the system of open access and free use, with only capture confering ownership of the fish.

8. Ambient sulfur dioxide and particulate matter have begun increasing again in the last decade in most developed countries, after several decades of progress.

9. Indoor particulate levels in poor countries rival particulate levels of the worst acute industrial inversion episodes of the past.

10. In the short-run, similar levels of pollution will result from a subsidy of $X/ton of pollution eliminated as will result from a tax of $X/ton emitted.

11. In the long-run, less pollution will result from a subsidy of $X/ton eliminated than from a tax of $X/ton emitted.

12. It was argued in class that the physical effects (soiling, health, etc.) of an environmental improvement are more certain than are the valuations of those effects by economists.

13. The policy of "separation of use" is generally more practical for water pollution than for air pollution.

14. Moral suasion as a policy instrument is more likely to be effective as a long- term remedy than for shorter term environmental concerns.

15. Moral suasion as a policy instrument is more likely to be effective if applied to households than to competitive firms.

16. Analysis of global environmental problems is made much simpler than local or regional problems because of 1) the similarity in levels of national environmental concern among nations, and 2) lesser uncertainty about how the global ecosystem works as compared to local or regional ecosystems.

17. It is largely carbon monoxide, CO, which cumulates near ground level creating the "greenhouse effect."

18. If all externalities were internalized by "socially optimal" controls, there would still be little agreement that air and water quality are at proper levels.
 

19. In studying total discharges of hydrocarbons to the oceans, it was argued in class that what happens to atmospheric hydrocarbon discharges is of little importance compared to intentional or unintentional marine spills.

20. Spatially uniform controls would lead to efficient levels of environmental quality if all locations had identical environmental cleanup MB and MC schedules.

21. An advantage of the referenda approach to environmental policy (one-person, one vote) is that small numbers of individuals with very great demands for environmental quality cannot impose their will on a majority that is little affected.

22. The principle cost associated with environmental policy as practiced in the U.S. has been the costs associated with add-on control devices.

23. An air pollution inversion results when relatively cool air traps relatively warm air near the surface of the ground causing pollution accumulation.

24. Pollution taxes or salable emissions rights are inefficient because they allow some polluters to continue to pollute all they want by buying permits from those who can clean-up more cheaply.

25. Income redistributional effects of a policy have no effect on the size of net present values, but such effects may greatly effect which policies are preferred by decision-makers.

26. In cases where the Coase Theorem applies, who has the property rights in air, water, "mudsplashes," and so on is of no concern to society since the efficient outcome will occur regardless of who has property rights in the various media.

27. It is unnecessary to acknowledge trade-offs between environmental goods and other goods because such goods are inherently non-comparable.

28. The use of dollars in an economic benefit-cost analysis is not a valid reason for widespread dislike by environmentalists of the economic approach of comparing dollar benefits and costs, since the dollars are merely convenient units of account to make comparable the real effects stemming from a policy.

29. Economic efficiency is not always enhanced by efforts to clean up the environment that have benefits greater than costs, due to the rise in the cost of goods whose production or consumption involves pollution.

30. With uniform controls, one usually expects relatively too little polluting activity to take place urban locations, with too little rural polluting activity.

31. Atmospheric hydrocarbons (HC) and carbon monoxide (CO) come mostly from the transportation sector.

32. Environmental pollution is a very young problem, with few important examples of undesirable environmental conditions prior to the 1950s.

33. Solid wastes are a lesser threat to human health than is air pollution.

34. CO₂ and ozone have been the principle culprits in the health damages experienced in major air pollution episodes in this century.

35. In class it was argued that the poor have had relatively larger net benefits than the rich from U.S. environmental policy, since they live in the dirtier parts of urban areas which would receive the greatest clean-up.

36. The presence of private market failure always guarantees that government intervention will improve resource allocation.

37. One reason given in class for why hedonic studies might overstate the benefits of air quality improvements was that many air pollution damages are not perceived by people.

38. If other "bads" are positively correlated with air pollution, and these bads are omitted from an hedonic equation, then damages from air pollution will be overstated by the equation.

39. The "sum of specific damages" approach to measuring environmental clean-up benefits assumes perfect damage perception by exposed households.

40. Ordinary supply and demand analysis results in a quantity of output that yields a higher benefit/cost ratio than any other output level, ignoring any market failures.

41. If two mutually exclusive projects had identical NPVs (assuming accurate net benefits in each period and using the same social rate of discount), we should be indifferent to them on equity grounds.

42. Economists think pollution is most usefully thought of as a moral/criminal problem.

43. Given the great importance of human health damages, it is appropriate to use a two-tiered (primary, secondary) environmental quality standard in which health is considered for the primary standard while material damage, aesthetic concerns, etc. are later taken up by secondary environmental standards.

44. Two mutually exclusive projects, Project X and Project Y, have B/C ratios of 1.2 and 1.5 respectively. Project Y must always be adopted on efficiency grounds.

45. Economists would always favor allowing more people into a wilderness area, since that would result in a greater total willingness-to-pay, as long as the last person entering has private benefits greater than or equal to his or her costs.

46. The impact of a policy on environmental quality per se is of little interest to environmental economists; rather it is the overall level of emissions that is of most concern.

47. An disadvantage of the survey/experimental approach ("contingent valuation") is that it may elicit environmental attitudes, but not true willingness-to-pay.

48. An undesirable location to consumers (say, one with dirty air) which is desirable to firms would be expected to have higher wages than elsewhere but the effect on rents would be ambiguous.

49. The travel cost method of obtaining demands for environmental goods relies on price variation that stems from different park entrance fees for different customers.

50. It was argued in class that the Coase Theorem might best be thought of as a reason why there are not more environmental problems than there are.

51. Global per capita calorie availability has fallen slowly but steadily since records have been kept beginning in the 1950s.

52. In True State of the Planet it was argued that the risk to humans and wildlife from agrochemicals is far smaller than the risk of losing wildlife to low yields and the consequent plowing down of more habitat.

53. Only about one-tenth of the earth's terrestrial area remains wilderness.
 

54. If lung cancer (which is primarily due to smoking) and skin cancer (which is primarily due to voluntary exposures) are excluded, cancer death rates are decreasing in the United States for all other cancers combined.

55. Most of the global warming that has occurred between 1881 and 1993 has occurred during the most recent half of that period, consistent with the large increases in greenhouse gases during that time.

56. Today, natural resources are about twice as expensive relative to wages as they were in 1980, about three times more expensive than they were fifty years ago, and roughly eight times more costly than they were in 1900.

57. Because of increasing exposure to harmful chemicals of industrial/agricultural origin, the last 15 years have seen a small, but steady, decline in life expectancy in the developed countries.
 

SHORT Answer essays: (Answer 9 of the 11 in the space allotted).
 

1. List the four ways of evaluating intertemporal cash flows (used to evaluate projects) that were discussed in class and indicate which is most preferred and why.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2. Discuss the two conflicting views (Boomsters and Doomsters) of the role of growing per capita income and of population on future environmental and resource conditions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3. Air pollution, endangered species, rain forest depletion, over-fishing and the like would seem on the surface to be dissimilar problems. Yet the economist argues that these problems are all related--what key insight links all of these problems?
 
 
 
 
 
 
 
 
 
 
 
 
 

4. Suppose that a completely accurate benefit analysis (incorporating accurate values attached to all physical effects) concluded that a 10 microgram reduction in air pollution was worth $30 million dollars per year (in ecological and other effects not directly affected by the number of people in the region) plus $20 per person per year in the affected region. If a control policy costing $30 million or less were available that could reduce pollution by ten micrograms in the region, it should--in terms of efficiency--obviously be applied, regardless of how many people were present to experience the benefits. Suppose, instead, that eliminating 10 micrograms of pollution costs $40 million. Question: What is the smallest size of city for which this clean-up effort could be justified on efficiency grounds? (show your work).
 
 
 
 
 
 
 
 
 
 
 

5. Why do economists believe that it is appropriate to discount events that happen in the future when they evaluate environmental and other projects?
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6. Explain the reasoning, in the cases where it applies, behind the "Coase Theorem"--why do we expect that the efficient outcome will occur? (HINT: what is an "efficient outcome" and what forces will bring it about under various liability rules)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

7. Why was it argued in class that salable water rights could lead to "efficient" use of western water? (Hint: first define what an "efficient" action is, then discuss what salable water rights will do.)
 
 
 
 
 
 
 
 
 
 
 
 
 

8. Describe in words only why (assumed relationships, etc) the ecological doomsday, in which both environmental quality and economic goods spiral downward, might occur.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9. "If I weatherize my house at a cost of $1,000, the market value of my house will increase by $900. My energy bill will decrease by $80 per year (assume no other positive or negative effects of the weatherization). Since I expect to live in my house for 7 more years, I expect energy savings (properly discounted) of about $400. Therefore, since the total benefits ($1,300) exceed the cost ($1,000), I should weatherize." (HINT: The market value of a house is a "Net Present Value"--what causes it to change?).
 
 
 
 
 
 
 
 
 
 
 
 
 

10. Of two mutually exclusive and independent projects, Project A costs $8 million and has a Net Present Value of $50,000 while Project B only costs $2 million and has a NPV of $49,000. Project B should be preferred on efficiency grounds. True, False, or Uncertain (explain your answer).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

11. Write a question of your own choosing--perhaps one you were hoping I would ask, but have not as yet. It will be graded like a diving meet--degree of difficulty counts and not just whether the answer is right or wrong.