Fall, 2004 Environmental Economics Phil Graves
1st Midterm, A EC3545 U. of Colorado
1) The existence of “scarcity” implies that
a) prices are too low.
b) poverty will always exist.
c) more environmental goods can be produced only by giving up other goods.
d) All of the above are true.
e) only b) and c) are true.
2) If the demand and supply curves accurately represent the marginal willingness-to-pay and the marginal social cost of production for a private good
a) the equilibrium price and quantity exchanged will be efficient.
b) the equilibrium price and quantity exchanged will be equitable.
c) producing either more or less than the equilibrium quantity will make society collectively worse off.
d) All of the above are true.
e) only a) and c) are true.
3) A perfectly functioning market will result in an equilibrium price and quantity that
a) maximize consumer surplus.
b) maximize producer surplus.
c) maximize the sum of consumer and producer surplus.
d) maximize fairness.
e) All of the above are true.
4) The goal of the economist is to have environmental goods produced by a society at levels that
a) are sustainable.
b) grow steadily over time.
c) replicate what a perfectly-functioning private market would provide if it could exist.
d) provide maximum net benefits to society.
e) only c) and d).
5) One of the following statements is false. Which one is it?
a) TSP and SOx come predominantly from combustion of fossil fuels in the power generation and industrial sectors of the economy.
b) Among the commonly monitored pollutants, TSP and SOx are of more concern, from a health perspective than are hydrocarbons (VOCs) and ozone.
c) Atmospheric levels of SOx and TSP are higher in the U.S. now than they were in the 1960s.
d) In terms of tonnage of emissions into the air, industrial sources are now responsible for more pollution than the transportation sector and electric power plants combined.
e) CO and VOC
emissions have been increasing, while NOx has decreased markedly
during the past thirty years.
(error in question--c, d, and e are all false)
6) In Priceless, Ackerman and Heinzerling argue that
a) seemingly scientific economic arguments are used to justify partisan political positions.
b) benefit-cost analysis as usually practiced pays no attention to who wins and who loses.
c) there is a tendency to over-estimate costs of regulations in advance of their implementation.
d) there is a
tendency to understate estimates of benefits because difficult to price
benefits
are often ignored.
(error in question--should be an e) answer, "all of the above" which is
correct)
7) Which, if any, of the following statements are false?
a) Technological advance generally results in less pollution per unit of output.
b) Materials extracted from the environment do not simply disappear when they are consumed.
c) From the perspective of economists, emissions are to be controlled independently of their impact on environmental quality and regardless of whether human externalities result.
d) Most rich (high GNP) countries have higher quality environments than do middle income countries in the $4-8,000 per capita range, despite the former's greater total production.
8) One of the following statements is false. Which one is it?
a) At the economist's social optimum (when externalities are fully internalized), one would generally not expect to observe continued environmental damages.
b) At the economist's optimal environmental quality, total benefits equal total costs of clean-up.
c) Environmental trade-offs (costs and benefits) are inevitable, hence should be considered, from the perspective of efficiency, in environmental policy decisions.
d) While there are many positive and negative features of voting as a means of deciding public issues, one undesirable feature of voting is that it does not allow those with very large environmental demands to express them at the expense of the majority.
e) There is far less
water available in surface reservoirs than in aquifers lying beneath
the
surface of the earth.
(error in question--both a and b are false)
9) Environmental policy, like any policy, involves both efficiency and equity. Which of the following are correct statements about these concepts?
a) Efficiency has to do with whether benefits are greater than costs while equity has to do with how those benefits and costs are distributed among people.
b) Equity has to do with whether benefits are greater than costs while efficiency has to do with how those benefits and costs are distributed among people.
c) Policies can be efficient yet socially undesirable on equity grounds.
d) Engineers and economists use “efficiency” in the same way, as for example in energy efficiency ratings of heaters.
e) Only a) and c) are true.
10) In class discussion of consumer boycotts and treaties to prevent trade in endangered species, for example with the ivory of elephants, the critical issue was seen to be:
a) the greed of mankind in consuming species to the point of extinction.
b) the size of the penalties against poachers.
c) the effectiveness of these policies in lowering the value of ivory, hence reducing poaching.
d) whether effective property rights exist so that the scarcity value of the elephant gets reflected in use decisions.
e) breeding size and rates of the species under consideration, in this case elephants.
11) Pure Public goods are goods that:
a) are provided by government, as for example a school lunch.
b) have the properties of being rivalrous and excludable.
c) have the properties of being rivalrous and non-excludable.
d) have the properties of being non-rivalrous and non-excludable.
e) None of the above accurately describe pure public goods.
12) Which of the following is not one of the 5 Boxes, dwelled on in class and in notes, that comprise the interdisciplinary environmental analysis approach?
a) Cost of the policy and impact on residuals
b) Residuals impact on environmental quality (dispersion).
c) Benefits of policy (damage reduction).
d) Incidence of the policy (who’s helped? who’s hurt?)
e) All of the above are among the 5 boxes we discussed.
13) For the hedonic method for valuing environmental improvements to work well, a number of conditions must hold. Which of the following is not one of those conditions?
a) households must have good perceptions of environmental damage and variations in environmental quality among locations.
b) there must be more people desiring a location in a good environment than there are locations possessing good environments.
c) rent (or property value) variation and wage variation must be considered together.
d) considering rent (or property value) variation and wage variation together would result in double counting of some unknown amount.
e) All of the above are necessary conditions for the hedonic method.
14) In class it was argued that air and water pollution, endangered species, rainforest destruction, the "freshman 10," cutting across the grass on C.U.'s campus, and so on are fundamentally similar. What is the feature that these problems have in common?
a) mankind’s greed is the common element.
b) failure to recycle is the common element.
c) criminal behavior is the common element.
d) immoral behavior is the common element.
e) a missing market is the common element.
15) Assume that city leaders city, such as those in Pittsburgh in the 1950s, enact legislation to clean up the air that benefits local residents but raises the costs of local firms. What can you most accurately say about what will happen to local wages and rents as a result of this legislation?
a) Wages and rents will both fall.
b) Wages and rents will both rise.
c) Wages will fall and rents will rise.
d) Wages will fall and rents will either rise or fall.
e) Wages will fall and rents will fall.
16) In Box 1 of the 5 Box diagram, costs of environmental policy are evaluated. Which of the following is false?
a) The dominant approach to environmental policy in the U.S. has been required add-on control devices.
b) Merely moving the same amount of pollution around in space, while costly, can be efficient.
c) A higher-cost but less environmentally-damaging input into production can be substituted for a lower-cost but more environmentally-damaging input.
d) The economic incentive approach (pollution taxes or salable emission rights) offers the largest cost saving over traditional command-and-control approaches when marginal costs of clean-up don’t vary among firms.
e) All of the above are true.
17) Evidence from Lomborg, and from prior tests in this course, suggests that
a) population will stabilize at slightly more than 16 billion people by 2100.
b) the developing countries per capita calorie intake has declined over the past ten years.
c) while life expectancy has increased a great deal in the developed countries, it has declined slightly in the past 50 years in the developing countries.
d) fish farm production is an increasing percentage of total fish consumed.
e) forest area, as a percent of total land area, has declined from about 60% to about 25-30% over the past 50 years.
18) Which of the following are true?
a) Because of the (unpriced) scarcity value of fish, there is too much fishing from each boat and there are too many boats.
b) Since 1950 annual oil production has grown, on average, at a faster rate than the growth in known oil resources.
c) Nuclear energy now supplies almost 40% of global energy production.
d) Lomborg argues that it is likely that we will face significant future mineral resource limitations on growth in the future.
e) All of the above are true.
19) Which of the following are true?
a) Even when accurately measured 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.
b) 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.
c) Optimal environmental controls may cause the prices of many goods to rise.
d) The EPA has established National Air Quality Standards for the 23 so-called "criteria pollutants."
e) Both a) and c) are true.
20) Economists take environmental problems as being synonymous with:
a) faulty preferences for environmental goods versus ordinary goods.
b) environmental damage.
c) negative externalities.
d) non-sustainability.
e) both b) and c).
21) The novel argument that Graves discussed in class, and has been going around the country giving seminars on, regarding the undervaluation of public goods was that:
a) It will be difficult to infer the value people place on public goods because they have an incentive to free ride.
b) Dollars are inappropriate for use in benefit-cost analysis, being crass and inhumane.
c) The examination of the trade-offs between certain kinds of goods and environmental goods is inappropriate in some situations.
d) All benefits of providing public goods, not just a subset of them, should be incorporated in environmental standards.
e) None of the above describe the argument.
22) In Box 5 of the 5-Box diagram, it was argued in class that environmental policy as practiced in the U.S.:
a) helps rich and poor equally, since we all breathe and drink the cleaner air and water.
b) helps those with below average income more than those with above average income.
c) helps those with above average income more than those with below average income.
d) fails to incorporate spatial and temporal variations.
e) None of the above.
23) One of the following is not true of the Sum of Specific Damages (SSD) approach to evaluating the benefits of environmental policies. Which statement is untrue?
a) SSD works best if damages are fully perceived by households.
b) SSD works best if damages are not well perceived by households.
c) SSD uses uncertain values attached the physical effects of concern.
d) SSD attempts to value physical effects that are themselves quite uncertain.
e) None of the above relate to the Sum of Specific Damages approach.
24) Which of the following is not true about externalities?
a) externalities are uncompensated spillovers.
b) externalities, without intervention, result in non-optimal levels of production.
c) negative externalities result in over-production of the good in question.
d) positive externalities result in under-production of the good in question.
e) when externalities are fully internalized, say by an optimal tax, there will be no remaining environmental damages.
25) Much discussion in class related to spatial impacts of environmental policy. Which of the following best captures that discussion:
a) We don’t want to just move pollution around, we want to eliminate it.
b) Uniform policies (equally stringent in every location) are both efficient and equitable.
c) Pollution should always be moved to where it does the least damage, regardless of cost.
d) Variations in marginal pollution damages over space imply that policy stringency should vary over space, too.
e) Fortunately, there
is very little variation in marginal damages over space, hence uniform
policies can generally be employed without loss of efficiency.