test questions Flashcards
Econnie’s marginal utility of a can of beer is 40 utils, her marginal utility of a cigarette is 20
utils, and her marginal utiity of “all other goods,” AOG, is 80 utils. A beer costs $1, a cigarette
costs $.50 and the price index for AOG is $2. Assuming for now that beer, cigarettes, and AOG
are independent goods (neither substitutes nor complements), to maximize her utility, Econnie
should:
continue to buy her utility-maximizing bundle of beer, cigarettes, and AOG
Suppose, in the initial conditions of the preceding question, that it is determined that
Econnie’s smoking a cigarette results in $.50 of negative externalities (“second-hand smoke”) on
those around her when she smokes. Ignore for simplicity any changes in the marginal utility of
AOG when its quantity changes (AOG is “big,” and changes very little). If Econnie is now
charged the full social cost of a cigarette, how will her consumption bundle change from its
initial level?
she will buy the same amount of beer and aog and less cigarettes
what will happen to econnie’s bundle of goods if beer and cigarettes are complements?
buy less of beer and cigarettes and more AOG
what effect does international trade have on labor/environment?
international trade increases wealth and therefore increases labor and environmental standards
what was argued to be efficient if not always equitable
discounting returns from environmental projects
enviornmental tradeoffs (costs and benefits)
are inevitable, hence they should be considered, on efficiency grounds, in environmental policy
whats the single biggest cause of animal extinction?
ineffective property rights of endangered animals
A firm, competitive in both input and output markets, is currently hiring 100 identical workers
each of whose marginal product is .1 ton/hour of a product selling for $120/ton. This firm also
buys 10 tons of materials, each ton of which has marginal product of .5 tons/hour. The hourly
wage is $12 and a ton of materials costs $30. To maximize profit, this firm should
hire less materials and the same amount of labor if labor’s marginal product is not
affected by the amount of materials hired.
wage/cost * MPL/MPK
what would be the effect on inputs and labor hired if a company was charged for its residuals?
they would employ more of the one they have an advantage in and less of the other
what would the effect of a damage tax be on firms in the long run?
smaller # of firms, but higher price than original
The law of conservation of matter and energy implies that failure to properly price residuals
from firms and households will result in:
non optimally dirty environment
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?
missing markets
international trade
increases wealth for both nations
Which of the following discount (interest) rates, when employed in environmental decision making, is most likely to result in acceptance of a given environmental policy?
0 discount rate
Coase, in the Theorem named after him, argued that, under certain circumstances:
does not matter who property rights are assigned too we will get efficient outcome eitherway
Environmental policy, like any policy, involves both efficiency and equity. Which of the
following are correct statements about these concepts?
Efficient actions have benefits greater than costs while equitable actions have a
distribution of benefits and costs among those affected that is viewed as fair.
Which of the following is a true statement regarding benefit-cost analysis?
Benefit-cost analysis can, on efficiency grounds, conclude that a project is inefficient,
but that project could still be collectively viewed as making society better off.
Economists take environmental problems as being synonymous with:
negative externalities
The novel argument that Graves discussed in class and in Chapter 8, regarding the valuation of public goods was that:
We work to acquire the goods we desire, and if we are unable to individually increase
some of those goods, we will under-generate income.
Which of the following is true about interest rates?
- interest rate is opportunity cost in terms of future consumption of consuming now
- increases in number of productive investment opportunities would result in higher interest rates
- increases in household savings would result in lower interest rates
At a 5% interest rate, a dollar to be received in one year will be worth approximately what
now?
.95 dollars
Firm A has a marginal cost of cleanup of $200/ton and pollutes 80 tons of SO2. Firm B, the
only other firm in the region, has marginal cleanup cost of $400/ton and pollutes 100 tons. Each
firm has been granted right to pollute 50% of last year’s pollution. What will happen?
At some price between $200/ton and $400/ton, Firm B will buy rights to pollute from
Firm A, but still must clean up 10 tons of pollution at a cost of $400/ton.
suppose a tax of $300/ton is imposed on polluters of SO2 rather
than the emission rights program described. But imagine now that there are many firms, each
like Firm A and Firm B. Relative to what would have happened with the tradable emission
rights, we would expect:
fewer firms, selling at the same price as with cap and trade
Which, if any, of the following is true about externalities
externalities, without intervention, result in non-optimal levels of production and
consumption
comparing presents by NPV and PVC
pick policy with highest npv
The existence of “scarcity” implies that
more environmental goods can be produced only by giving up other goods.
If the demand and supply curves accurately represent the social marginal benefit and the
marginal social cost of production for a private good
the equilibrium price and quantity will be efficient but not necessarily equitable
A perfectly functioning market will result in an equilibrium price and quantity that
- maximizes consumer surplus in the long run when supply curves are flat.
- maximizes the sum of consumer and producer surplus in the short run.
pure public goods
non rivalrous and non excludable
because of the unpriced scarcity value of fish
there are too many fishing boats and each boat is fishing too much
At a 10% interest rate, a dollar received in two years will be worth approximately what now?
80 cents
At a 10% interest rate, a dollar now will be worth approximately what in two years?
1.20 dollars
negative externalities
are uncompensated spillovers
We are trying to rank, in efficiency, two environmental projects
the one with present benefits most in excess of present costs
consumer surplus
the area under the demand curve but above the equilibrium price.
The equilibrium price and quantity in a perfect supply and demand world results in:
maximum sum of producer and consumer surplus
If a market is in both short-run equilibrium and in long-run equilibrium (normal rate of return
on investment in the industry is being earned), the short run situation can be characterized as:
- producer surplus will equal fixed costs
- fixed costs will equal total revenue
In Box 5 of the 5-Box Diagram, the equity impact of environmental policy in the United
States was argued to be:
regressive, poor pay a disproportionate amount of costs and receive a disproportionate amount of the benefits
what is true of imports/exports?
imports help domestic consumers by more than they hurt domestic producers
exports help domestic producers by more than they hurt domestic consumers
at the economists optimal level
marginal benefits equal marginal cost of cleanup
