econ test 2

Question 1

explain Hardin’s concept of the “tragedy of Commons” and its implications for resource management

Answer 1

when people behave selfishly, they overuse and deplete shared resources which has a negative impact on the sustainability of the resource. it means that communal resources are likely to run out in the absence of rules/collective management

Question 2

what is the difference between use value and nonuse value?

Answer 2

use value is the benefit people derive from the environment while nonuse value is the benefit of simply knowing a resource exists

Question 3

name the main steps in a risk assessment process

Answer 3

1- hazard identification
2- dose-response assessment
3- exposure assessment
4- risk characterization

Question 4

describe what a risk identification is in a risk assessment process

Answer 4

the determination wether a substance, an activity, or a situation can be harmful to the environment/human health

Question 5

describe what dose-response assessment is in a risk assessment process

Answer 5

understanding how different levels of exposure to a hazard might affect health and environment

Question 6

describe what exposure assessment is is risk assessment process

Answer 6

measuring/estimating the extent of the exposure to the hazard among the population/ecosystem

Question 7

describe what risk characterization is in a risk assessment process

Answer 7

combining all the info from the previous steps to estimate overall risk posed by the hazard

Question 8

summarize the Coase Theorem

Answer 8

when parties can negotiate solutions to issues without the involvement of the gov. if there are no transaction costs

Question 9

what is a key assumption to the coase theorem

Answer 9

no transaction costs

Question 10

define “cost-benefit analysis”

Answer 10

CBA is used to evaluate the economic efficiency of policies by comparing the costs and the benefits

Question 11

what is the its role of CBA in environment decision-making

Answer 11

it helps in decisions on regulatory actions that maximize societal welfare

Question 12

what is “mutual coercion” in hardin’s argument?

Answer 12

societally agreed-upon restrictions to manage the commons efficiently

Question 13

why does hardin see that “mutual coercion” is necessary?

Answer 13

because voluntary restraint often fails in community resource management

Question 14

identify the 3 main categories of value in environmental economics

Answer 14

1- use value
2- nonuse value
3- option value

Question 15

briefly explain the three main categories of value in environmental economics

Answer 15

use value is the benefit people derive from the environment, nonuse value is the benefit of simply knowing a resource exists and option value is the value of preserving the option to use a resource in the future

Question 16

how does the Pigovian approach propose to address negative externalities?

Answer 16

taxes can be used to internalize external costs and balance private and public expenses in order to reduce pollution or overconsumption

Question 17

explain how the coase theorem addresses the concept of “reciprocal harm” in resolving disputes over externalities

Answer 17

it acknowledges that both parties in an externality situation are affected. Coase argues that assigning property rights can lead to mutually beneficial agreements

Question 18

describe an example of a market-based policy that aims to reduce pollution by aligning private costs with societal costs

Answer 18

a cap-and-trade system limits total emissions but allows firms to trade permits which align private incentives with social goals

Question 18

give an example of a stakeholder category that might be considered in a distributional analysis

Answer 18

low-income communities may be considered to evaluate if a regulation disproportionately impacts them

Question 18

how does conducting a distributional analysis in cost-benefit analysis differ from simply calculating overall costs and benefits

Answer 18

it goes beyond just the aggregate cost and benefits to assess equity impacts

Question 18

how does Hardin critique the “invisible hand” theory in the context of common resource management

Answer 18

he believes uncontrolled personal interests result in excessive exploitation of the commons.

Question 18

what is the purpose of conducting a distributional analysis in cost-benefit analysis

Answer 18

it examines how costs and benefits are distributed among different groups

Question 19

explain the concept of “opportunity cost” and how it should be considered when estimating the costs in a cost-benefit analysis

Answer 19

determining the actual cost of regulatory actions depends on understanding the value of foregone alternatives, sometimes known as opportunity cost

Question 19

define “willingness-to-pay” (wtp) and explain its significance in valuing non-market goods/services within cost-benefit analysis

Answer 19

the maximum amount an individual is willing to pay for a non-market good, used in CBA to value environmental services

Question 20

explain why a discount rate is used in cost-benefit analysis and how it reflects the concept of time preference

Answer 20

by lowering the present value of future gains and expenses, the discount rate captures temporal preference and affects long-term dicisions

Question 21

why might a regulatory agency choose to use a “social discount rate” instead of a standard discount rate, and what implications does this choice have for evaluating long-term regulatory impacts

Answer 21

to emphasize sustainability and give more importance to long-term advantages, regulatory agencies can use a lower social discount rate

Question 22

if a regulatory proposal has a high up-front cost but long-term environmental benefits, why might policymakers consider using a lower social discount rate instead of the standard discount rate?

Answer 22

future environmental benefits are worth more in the present when the discount rate is lower, which justifies the initial investment

Question 23

explain the concept of incremental impacts in cost-benefit analysis and how it relates to the baseline and regulatory scenarios. what factors should be considered

Answer 23

incremental impacts are the differences between what would happen without regulation (baseline scenario) and what is expected with the regulation in place (regulatory scenario). important factors are: costs, benefits, and the regulatory scenario

Question 24

what are the main purposes of conducting a sensitivity analysis in cost-benefit analysis

Answer 24

sensitivity analysis helps policymakers deal with uncertainty by evaluating how results vary under different presumptions