First Exam ABU 402 01, Spring 2015, Name:____________________, Date______________

Multiple Choice Questions:

1. Economics is the study of
a) Production methods.
b) How society manages its scare resources.
c) How households decide who performs which tasks.
d) The interaction of business and government.

2) United Nations Environmental Program is not concerned with one of these
a) Global environmental outlook.
b) Nitrogen pollution in one freshwater and oceans
c) Global population growth.
d) Measurement of ocean levels

3) The problem of equity involves the following
a) If property right is assigned to a polluter where the community is poor, the community cannot pay the polluter not to pollute.
b) If property right is assigned to the poor community, it will accept location of toxic waste dump and other polluting facilities out of desperate need for compensatory funds.
c) In the preservation of open spaces, wealthy communities can buy the spaces but poor communities can’t.
d) All of the above

4) Which of the following is an example of external benefit?
a) Pollution from a manufacturing plant
b) Public health policies mandating vaccinations
c) Higher education
d) Public health policies mandating vaccinations and higher education

5. Below is a Production Possibilities Frontier (PPC) for an economy. Which event would lead to the shift in the PPC curve from PPC0 to PPC1, (A) external benefits __ or (B) external cost __.
[pic]

6. Since World War II, economic growth has been phenomenal and population has grown by leaps and bounds. Which of these is not a demand that population increase has placed on society?
a) Improved living standard
b) Energy issues
c) Capacity of the environment to sustain the level of output
d) Externalities on public goods

7. An externality is-
a. The costs that parties incur in the process of agreeing and following through on a bargain.
b. A market equilibrium tax.
c. The proposition that private parties can bargain without cost over the allocation of resources.
d. The cost or benefit imposed on a third party not involved in a particular arrangement.

8. Which of the following represents a way that a government can help the private market to internalize an externality?
a. taxing goods that have negative externalities
b. subsidizing goods that have positive externalities
c. The government cannot improve upon the outcomes of private markets.
d. Both a and b are correct.

9. Private markets fail to account for externalities because
a. externalities don't occur in private markets.
b. sellers include costs associated with externalities in the price of their product.
c. decision makers in the market fail to include the costs of their behavior to third parties.
d. the government cannot easily estimate the optimal quantity of pollution.

10) All except one of these are the benefits derived from the effort at conserving the rainforest of Central and South America.
a) Tourists (foreign and local) to see unspoiled rainforest
b) Preservation of species diversity and pharmaceutical products from rainforest species
c) Example of Coase’s theorem of rainforest conservation
d) Bird watchers in North America see rear birds from rainforest

11) To achieve a more efficient equilibrium, protect the fishery ecosystem, and improve social benefits, society imposes the following measures except
a) Fishery sales
b) License fee
c. Quota – individual transferable quota
d. Sell fishing quota at auction

12). These are all determinants of economic growth except
a. Capital accumulation.
b. Technological progress or innovation.
c. Efficiency
d. Energy supply

13. Which of the following is the best response for the following statement? Ecological Economics introduce three additional factors into the study of environmental and natural resource economics.
a. Energy supply
b. Natural capital – supplies of land and natural resources
c. Absorptive capacity of the environment for the waste product in industrial development.
d. All of the above

14. Private markets fail to account for externalities because
a. externalities don't occur in private markets.
b. sellers include costs associated with externalities in the price of their product.
c. decision makers in the market fail to include the costs of their behavior to third parties.
d. the government cannot easily estimate the optimal quantity of pollution.

15. Which one of the following statements is false?
a.Market solutions are always economically efficient
b.Problems with global commons are partly a result of free riding
c.Public preferences are not always expressed in markets
d.Public and private preferences may differ

16. What is the standard economic technique used to compare present and future benefits and costs?
a.Property rights
b.Microeconomics
c.Externalities
d.Discounting

17. The “tragedy of the commons” is most likely to occur with which one of the following goods?
a. A national forest
b. A mineral ore deposit
c. A public highway
d. A groundwater aquifer

18. What two factors do standard economics consider as the most important in explaining productivity increases?
a. Increasing energy supplies and technological progress
b. Increasing capital stock and technological progress
c. Increasing energy supplies and increasing natural resources
d. Increasing capital stock and increasing energy supplies

19. In studying economic growth, ecological economics focuses on which three factors that tend to be less central to traditional economic models?
a. Energy supply, technological progress, and the absorptive capacity of the environment
b. Energy supply, capital stock, and the absorptive capacity of the environment
c. Energy supply, land and natural resources, and the absorptive capacity of the environment
d. Technological progress, capital stock, and land and natural resources

20. What was predicted by the basic “Limits to Growth” model? a. Population growth would increase exponentially for the indefinite future b. Future global warming would lead to a dramatic decline in biodiversity
c. Resource shortages would limit growth within 100 years
d. Humanity can achieve a sustainable society with the next 50 years

21. The standard economic approach to pollution control …
a. Requires reducing pollution by a set percentage
b. Involves weighing the costs and benefits of pollution reduction
c. Places limits on allowable economic growth
d. Deals only with cumulative pollutants

22. Which one of the following is not a possible way to internalize externalities?
a. Eliminate government intervention
b. Raise taxes
c. Create subsidies
d. Create a system of tradable permits
23. The Coase theorem states that ...
a. Property rights should initially be assigned to those affected by a negative externality
b. Property rights should initially be assigned to those creating a negative externality
c. As long as property rights are well defined and no transactions costs exist, an efficient allocation will result
d. As long as property rights are well defined and transactions costs are high, an efficient allocation will result

24. Total net benefits are maximized when marginal net benefits are ...
a. Maximized
b. Minimized
c. Zero
d. Equal to the discount rate

True/False

7.____ Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.
8. ____ Technology could prolong energy use as we pursue alternative sources.

9. ____ All points outside the production possibilities curve to the right can only be attained if more resources are accumulated and/or through trade.

10.____ One person's use of common resources does not reduce the enjoyment other people receive from the resource.

11.____ National defense is regarded as public good.

12.____ If marginal social cost is greater than marginal social benefit, economic efficiency can be improved by decreasing production

13.____ In determining the efficient amount of a good or service, it is only required that the benefit provided by a good or service be equal to or greater than the cost of providing it.

14.____ For Coase’s theorem to hold, the party to the arrangement should be no more than two and property rights must be undefined and assigned

15.____ Sustainable development should include the increase of output of goods and services as well as the maintenance of the ecological base of the economy, such as fertile soil, natural ecosystems, forests, fisheries, and water systems.

16. ____ All points on or below the production possibilities curve are attainable.

17.____ It pays to increase the production of capital goods if the marginal benefit of the production decision exceeds the marginal cost.

23.____ Tax incentives and purchase of development rights are instruments used to socially internalize social benefits of activities that generate positive externalities

45. The supply function for zinc is represented as Ps = 60 + 0.35Q and the demand function is Pd = 200 - 0.35Q. Derive the marginal net benefit function. Show it graphically and indicate the point where total net benefit is maximized. (Use the space on the other side.)

48. Draw a graph to show how you can use user cost to internalize externality in the market period for coal. Label your axes and the curves accurately. [Hint: Which curve includes the user cost (social cost)?]