Midterm EC3545 Spring, 2002

True False (assume question relates to U.S., unless indicated otherwise; 1 pt each; NOTE: if any part of the question is false, the entire question is false)

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 believe that some preferences are better than others, hence should carry more weight in environmental analysis.

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 three pollutants designated as "criteria" pollutants.

7. __ __ Ozone is desirable at ground level, but is viewed as a stratospheric pollutant.

8. __ __ U.S. emissions of all of the criteria pollutants have declined, with the exception of nitrogen dioxide over the past three decades.

9. __ __ Surface water is about half as abundant as ground water in the U.S.

10. __ __ DO is the most-often cited measure of water quality, although BOD (a measure of pollution loading) is often referred to, as well.

11. __ __ Because of the (unpriced) scarcity value of fish, there is too much fishing from each boat and there are too many boats.

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 required add-on control devices.

14. __ __ An advantage 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 not inevitable, hence the reluctance on the part of environmentalists to accept benefit-cost analysis.

16. __ __ The Sum-of-Specific damages 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. __ __ Even when dollar costs exceed dollar benefits of a particular policy, it is still possible that we could be making society better off by adopting that policy, since the distribution of the benefits and costs matters.

19. __ __ Proper valuation of the environmental benefits that are captured by hedonic methods can be done in either the labor market or the land market separately.

20. __ __Optimal environmental controls may cause the prices of many goods to rise.

SHORT Answer essays: (five points each; answer 8 of 9; CROSS-OUT ONE!)
Note: To conserve paper, I have deleted the spaces between questions allowed to answer them (see other tests).

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. Define a "public good" and give an example of one; then, explain why the market fails to produce the correct amount of such goods.

4. We discussed the ivory ban in some detail in class: a) Under what circumstances might a consumer boycott of products made from endangered species be a "good" policy (improve the odds of saving the species from extinction)? b) Under what circumstances would such a policy be undesirable for the goal of saving a species?

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 "shortages" share an important trait with other environmental problems. What is that trait and why does it make natural variations in rainfall more troublesome? (Hint: water shortages are "like" the Freshman 10Bhow?)

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?