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University of Colorado at Boulder, Summer 1999, Environmental Economics, Econ 3545

Exam 1

There are 30 questions in this test, each worth one point. Attempt all questions.

Multiple Choice Questions

Circle the correct/best statement.
  • Environmental economics does not deal with scarcity of resources because environmental resources are abundant.
  • Environmental economics deals with optimal quality of those environmental resources that cannot be subdivided into smaller physical units, like air quality and ecology.
  • Environmental economics deals with optimal quantity of those natural resources that can be divided into smaller physical units, like barrels of crude oil and cubit feet of lumber.
  • Both b and c are correct.

    • Circle the correct/best statement.

  • A society faces a tradeoff between the amount of market goods and the level of environmental quality it can enjoy.
  • A society faces a tradeoff between the amount of market goods it can enjoy in the short run and the amount of market goods it can enjoy in the long run.
  • Both a and b are correct.
  • Both a and b are not correct.

    • Two principal characteristics of "economics approach" are

  • rationality and anthropocentricity.
  • rationality and efficiency.
  • efficiency and cost effectiveness.
  • efficiency and equity.

    • I was sick today with 1000 F fever, and yet I went to work for 8 hours and earned $64. According to the economics approach,

  • I am an irrational person to go to work because "health is wealth."
  • I am a rational person to go to work because "work is worship."
  • I am an irrational person because the discomfort of sickness far outweighs $64 of earning.
  • I am a rational person because the discomfort of sickness to me was worth less than $64.

    • According to the economics approach,

  • a forest owner who does not allow any trees to be cut for lumber despite offers would always be considered using the resource inefficiently.
  • a forest owner who does not allow any trees to be cut for lumber despite offers would always be considered using the resource efficiently.
  • a forest owner who does not allow any trees to be cut for lumber despite offers would be considered using the resource efficiently if benefits of letting trees stand exceed the amount of offers made for lumber.
  • a forest owner who does not allow any trees to be cut for lumber despite offers would be considered using the resource efficiently if the amount of offers made for lumber exceed benefits of letting the trees stand.
    •  Economics approach is called anthropocentric because
  • environmental resources are evaluated based on their uses to human beings.
  • environmental resources are evaluated based on their uses to all living beings, human or non-human.
  • even a small environmental degradation from an action is considered unacceptable, irrespective of the magnitude of benefits of the action to human beings.
  • even a large environmental degradation from an action is considered acceptable, if there are at least some benefits to human beings.

    • Which distinguishes between decisions made in a market place and decisions made from the perspective of a society?

  • There is no distinction between the two kinds of decisions because both the market and the society is a collection of the same people.
  • Decisions in a market place are driven by self-interests of individual decision makers, with no regard to impact of their decisions on others, whereas decisions made from the perspective of a society include impacts of decisions on all members of the society.
  • There is no distinction between the two kinds of decisions because both the market's and the society's decisions are based on the economics approach.
  • There is a distinction between the two kinds of decisions because a market's decisions are based on the economics approach, but a society's decisions are not based on the economics approach.

    • Which is not a social cost of producing bread?

  • The cost of flour that goes into producing a bread.
  • The payment of sales tax to the government on sales/purchases of bread.
  • The voluntary (unpaid) help of a person getting training on bakery.
  • All of the above.

    • Circle the correct/best statement.

  • Social costs are the costs that are paid in dollars.
  • Social costs are the costs that involve use of resources, irrespective of whether money is paid or not for the use of resources.
  • Private costs are the costs that an individual decision maker pays in dollars.
  • Both b and c are correct.

    • The Foley's employs sales persons on commission basis. To a sales person, it pays $10 commission for the first suit sold by the person, $11 for the second suit sold, $12 for the third suit sold, and so on. If a sales person sells three suits,

  • the average sales commission cost to the Foley's is $12 per suit.
  • the marginal sales commission cost to the Foley's is $12 for the third suit.
  • both the marginal and average commission costs to the Foley's are $12 per suit.
  • none of the above is correct.

    • Circle the correct/best statement.

  • Efficiency is to compare all available alternatives and to choose the alternative that is associated with the largest net benefit.
  • Cost effectiveness is to choose the least cost alternative to achieve a desired target.
  • Efficiency implies cost effectiveness, but cost effectiveness does not necessarily imply efficiency.
  • All of the above are correct.

    • Which is the efficiency rule?

  • Equalizing social MB to social MC.
  • Equalizing MC across all plants to achieve the desired level of emission reduction.
  • Equalizing total net benefit to zero.
  • None of the above.

    • Which is the equimarginal principle of cost effectiveness?

  • Equalizing social MB to social MC.
  • Equalizing MC across all plants to achieve the desired level of emission reduction.
  • Equalizing total net benefit to zero.
  • None of the above.
    •

    According to the law of demand,

  • the higher the price, the larger the quantity supplied.
  • the higher the price, the larger the quantity demanded.
  • the higher the price, the smaller the quantity supplied.
  • the higher the price, the smaller the quantity demanded.

    • How much would you be willing to pay for 10% improvement in air quality is likely to depend on

  • the current level of air quality.
  • your income level.
  • your attitude/preference for environmental quality.
  • all of the above.

    • According to the law of supply,

  • the higher the price, the larger the quantity supplied.
  • the higher the price, the larger the quantity demanded.
  • the higher the price, the smaller the quantity supplied.
  • the higher the price, the smaller the quantity demanded.
    •

    Implicit in the demand curve for a good is the assumption that

  • the marginal cost of producing the good is increasing with production.
  • the marginal cost of producing the good is decreasing with production.
  • the marginal benefit of consuming the good is increasing with consumption.
  • the marginal benefit of consuming the good is decreasing with consumption.

    • When there is no divergence between private MB and social MB and between private MC and social MC, a market achieves

  • efficient allocation of resources.
  • equitable allocation of resources.
  • both efficient and equitable allocation of resources.
  • none of the above.

    • Social MC of producing a good associated with negative externality exceeds private MC of producing that good. Therefore, market output of such goods, in the absence of government regulation, would be

  • lower than the efficient level of output.
  • higher than the efficient level of output.
  • equal to the efficient level of output.
  • either higher or lower than the efficient level of output.

    • Efficiency means

  • maximization of society's total net benefits.
  • maximization of an individual's total net benefits.
  • both of the above.
  • none of the above.

    • A person cannot be excluded from consuming a public good, even when the person does not pay for the good. This characteristics of public good is called

  • nonrivalness.
  • nonexcludability.
  • anthropocentricity.
  • rationality.

    • Free riding of public goods occurs because

  • nonpayers cannot be excluded from consuming public goods.
  • public goods are "free."
  • it is immoral to pay for public goods.
  • public goods have no value to people.

    • Use the two characteristics of public goods -- nonrivalness and nonexcludability -- to identify which of the following is the best example of a public good.

  • The Disney World amusement park
  • A textbook in environmental economics
  • An emergency warning siren located on top of the tallest building on your campus
  • Garbage collection service provided by a local government on a monthly fee basis

    • The tendency of voters to remain uninformed on issues and candidates is called

  • rent seeking.
  • rational ignorance effect.
  • short-sightedness effect.
  • special interest effect.

    • In a simple model of pollution control presented in the class

  • marginal damage increases with more emissions.
  • marginal abatement cost increases with more emission reduction.
  • both a and b are correct.
  • both a and b are not correct.

    • The efficient level of emissions is

  • zero level of emissions.
  • the threshold level of emissions.
  • the uncontrolled level of emissions.
  • the level of emissions where MD=MAC.

    • The efficient level of emissions

  • maximizes the benefits of damages saved, net of abatement costs (i.e., damages saved minus abatement costs).
  • minimizes the sum of the total damages and the total abatement costs.
  • does both a and b.
  • does none of the above.

    • The threshold level of emissions is

  • zero level of emissions.
  • the minimum level of emissions to begin to cause a damage.
  • the maximum level of emissions.
  • none of the above.

    • Compared to when marginal enforcement costs are ignored in the determination of efficient level of emissions, inclusion of marginal enforcement costs would suggest

  • a lower level of emission reduction.
  • a higher level of emission reduction.
  • the same level of emission reduction.
  • a higher or a lower level of emission reduction.

    • Circle the correct/best statement.

  • Because of free riding, private entrepreneurs hesitate from supplying public goods.
  • Because of free riding, amount of contributions raised for environmental causes understates the marginal social benefit of these causes.
  • A market provision of public goods (e.g. provision by activist organizations) would be lower than the efficient level of output of public goods.
  • All of the above are correct.

    • Answer Key

    1b 2c 3a 4d 5c 6a 7b 8b 9d 10b 11d 12a 13b 14d 15d
    16a 17d 18a 19b 20a 21b 22a 23c 24b 25c 26d 27c 28b 29a 30d