Final EC3545 Spring, 2002
1. __ __ The Doomsters believe that growing income and population will result in serious resource depletion and environmental quality problems.
2. __ __ "Rationality" (individuals behaving in ways that make them better off) requires that individuals pursue activities up to the point where expected marginal benefits exceed expected marginal costs by the maximum amount.
3. __ __ Economists believe that the environmental preferences that humans have for other species should be included in benefit-cost analysis.
4. __ __ Economists, in benefit-cost analysis, believe that benefits and costs should be discounted and added up, and if the net present value of the benefits is greater than the net present value of the costs the project should be conducted, on efficiency grounds.
5. __ __ The traditional goal of the economist is to have resources allocated so as to provide the amount of environmental goods that would be supplied by a perfectly competitive market, if it could exist for such goods.
6. __ __ The EPA monitors the thirteen pollutants designated as "criteria" pollutants.
7. __ __ Ozone is desirable in the stratosphere, but is viewed as a pollutant at ground level.
8. __ __ U.S. emissions of all of the criteria pollutants have increased, most notably nitrogen dioxide, over the past three decades.
9. __ __ Ground water is about twice as abundant as surface water in the U.S.
10. __ __ DO is the most-often cited measure of emissions into surface water, although BOD (a measure of water quality) is often referred to, as well.
11. __ __ Fundamentally because of growth of population and income, the world’s fisheries are becoming depleted of the fish we care most about.
12. __ __ Dollars, as used in benefit-cost analysis, are base, crass and inhumane-it is inappropriate to compare tragic physical health effects with mere pieces of paper.
13. __ __ The dominant approach on to environmental policy in the U.S. has been the use of economic incentives, such as salable emissions rights or pollution taxes.
14. __ __ A disadvantage of the referenda approach to determining benefits is that a few people with very large benefits can't thwart the will of the majority.
15. __ __ Environmental trade-offs (costs and benefits) are inevitable results of any decision, whether we choose to think about them or not.
16. __ __ The Hedonic approach to valuing environmental improvements will work best if the causes of damage and variations over space in pollution are unknown to people.
17. __ __ The travel cost methods of benefit estimation give a lower bound to the true benefits, assuming a single trip destination.
18. __ __ Benefit-cost analysis makes decisions having benefits and costs spanning long time periods just like decisions at a point in time, e.g. buying pizza or a hamburger.
19. __ __ Proper valuation of the environmental benefits that are captured by hedonic methods require that the labor market and the land market be considered together.
20. __ __ Optimal environmental controls can, and should, be instituted without allowing the prices of goods to rise.
21. __ __ Benefit-cost analysis weights the preferences of each individual according to willingness-to-pay; hence unlike voting everyone does not have an "equal say."
22. __ __ Benefit-cost analysis can, on efficiency grounds, conclude that a project is efficient, but that project could still be collectively viewed as making society worse off.
23. __ __ Project A has a B/C ratio of 2.5, while Project B has a B/C ratio of 1.7. On efficiency grounds, it must always be the case that Project A is preferred to B.
24. __ __ Cars have gotten cleaner at rates exceeding the number of cars, so that automobile pollution in most of the U.S. has been reduced over the past three decades.
25. __ __ Coase argued that, regardless of property rights assignment, the efficient outcome would occur, under certain conditions.
26. __ __ Coase argued that, regardless of transaction costs, the efficient outcome would occur, under certain conditions.
27. __ __ Economists’ definition of environmental problems ("uncompensated spillovers") is always a subset (less inclusive) than the definition of biologists/environmentalists.
28. __ __ It was argued in class that rising incomes in the developing countries, for whatever reason (including trade), would result ultimately in improved environmental and labor conditions in those countries.
29. __ __ Baby certificates, like salable emission rights for pollution, were argued in class to allow greater consideration, vis-à-vis other policy approaches, of individual variations in benefits and costs (of having children or polluting, respectively).
30. __ __ Ehrlich won the Ehrlich/Simon bet (reward for those in class for the review).
31. __ __ Since Lomborg argues (assume rightly, for purposes of this question) that most environmental measures are improving, it must be the case that we are getting the correct relative amounts of environmental and other goods.
1. As was discussed in class, from an economist’s perspective, environmental quality could be getting better, yet could be perceived as getting worse. Explain how that could be.
2. Economists, in their role as economists, are fundamentally at odds with environmentalists; economists are focused on improvements in the material well being of people (GDP being one good measure of that) regardless of the environmental degradation that might occur. (T, F, or uncertain; explain your answer)
3. Compared to other "average locations" you would expect to observe what relative wage and rent affects for a location that was:
4. "It is mankind’s greed that is causing the depletion of the world’s fisheries!" True, False, or Uncertain—explain your answer. [Hint: we discussed fishermen and their boats in class and made two key arguments, both stemming from a fundamental problem].
5. Why is it important to include atmospheric modelers (for air) and hydrologists (for water) in the analysis of policies attempting to deal with air and water pollution?
6. The economic incentive approach (salable emissions rights or pollution taxes for example) to environmental clean-up discussed in class (the SOx example) resulted in lower costs for a given level of emissions. Explain why that was the case (HINT: first define "costs," then describe why costs are lower under the incentive approach).
7. In the discussion of property value approaches to valuing environmental quality, it was argued that benefits might be either overstated or understated, depending on which of two biases dominated. Restricting your discussion to the property value approach, what were the arguments for a) overstated environmental values, and b) understated values?
8. "Water should be allocated to those who are most deserving and should not be allowed to be resold, because the water would then end up in the hands of the rich." True, False, or Uncertain—explain your answer. [HINT: discuss equity and efficiency].
9. In class, Graves argued that the traditional way of determining marginal values for public goods (adding up, vertically, the marginal willingness-to-pay of all individuals benefiting from the public good, at a given income) is flawed. Why did he argue that this method would undervalue the environment and other public goods?
10. List and briefly describe the elements of the 5-Box diagram, sufficiently clearly that it is evident that you know what analysis occurs in each box.
11. You are in charge of determining how many people get to use an environmental resource (e.g. a wilderness area). You are under great pressure by environmentalists and by economists to take stances that differ in broadly defined ways. What you would attempt to do, compared to doing nothing, if you wanted to please the economists? To please the environmentalists?
12. The Coase Theorem makes a statement regarding property rights, transactions costs, and efficiency. Write out the Coase Theorem and give a numerical example of how it works, under the conditions in which it will work.
13. Show, using either production possibility frontiers or supply and demand graphs, that international trade increases the wealth of nations, making trading countries (rich or poor) better off than they would have been in the absence of trade.
14. Describe the central features of the "ecological/economic doomsday model" discussed in class.