Environmental Economics 4Th Canadian Edition By Field – Test Bank

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Environmental Economics 4Th Canadian Edition By Field – Test Bank

 Sample Questions

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Chapter 02

Natural Capital, Linkages between the Economy and the Environment, and Pollution

 

 Multiple Choice Questions

1. Mineral stocks, fisheries and water are all examples of ________.
   A.renewable resources
   B. non-renewable resources
   C. natural resource capital
   D. environmental capital

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-01 Describe the three components of natural capital and give specific examples of each type.

2. The stock of natural and environmental resources that sustain ecosystems, the economy and the well-being of individuals is referred to as ________.
   A.renewable resources
   B. biological diversity
   C. ambient quality
   D. natural capital

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-01 Describe the three components of natural capital and give specific examples of each type.

3. In the phrase “natural capital,” the word “capital” captures the economic concept that nature is ________.
   A.a store of value
   B. capable of producing goods and services
   C. depletable over time
   D. all of the choices are correct

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-01 Describe the three components of natural capital and give specific examples of each type.

 

 

4. The trade-off that exists between harvesting as much as possible of a renewable resource today versus waiting for the future exemplifies the ________ of many natural resource management issues.
   A.sustainability
   B. intertemporal dimension
   C. short-run impact
   D. efficiency

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-02 Explain the intertemporal trade-offs with natural capital use.

5. When a new production technology is invented that results in production of smaller amounts of residuals per unit of output produced, this is called reducing the ________.
   A.damages from production
   B. intensity of pollution
   C. residuals from production
   D. residuals intensity of production

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-03 Describe ways to reduce residuals from the economy.

6. The residuals from production can be reduced by ________.
   A.shifting the composition of output towards low-residual items
   B. preventing pollution by reducing the energy inputs required to produce each unit of output
   C. reducing the residuals intensity of production
   D. all of the choices are correct

 

Accessibility: Keyboard Navigation
Difficulty: Moderate
Learning Objective: 02-03 Describe ways to reduce residuals from the economy.

 

 

7. Low-phosphate detergents, mercury-free thermometers and energy-efficient appliances are all examples of ________.
   A.pollution-intensive goods
   B. low-carbon goods
   C. environmentally friendly goods
   D. pollution-free goods

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-03 Describe ways to reduce residuals from the economy.

8. As long as the capacity of the earth’s atmosphere to absorb emissions of CO₂ is not exceeded, CO₂ is a(n) ________ pollutant. Once the capacity of the atmosphere to absorb CO₂ is exceeded, it becomes a(n) ________ pollutant.
   A.episodic; continuous
   B. non-accumulative; accumulative
   C. regional; global
   D. accumulative; non-accumulative

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-04 Describe the different categories of pollution and contrast the degree of complexity in reducing emissions.

9. An accidental oil spill is an example of a(n) ________ emission while municipal treated waste is an example of a(n) ________ emission.
   A.continuous; episodic
   B. global; local
   C. point source; nonpoint source
   D. episodic; continuous

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-04 Describe the different categories of pollution and contrast the degree of complexity in reducing emissions.

 

 

 True / False Questions

10. Continued extraction of a non-renewable resource can be sustainable over time if managed properly.
    FALSE

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-02 Explain the intertemporal trade-offs with natural capital use.

11. A living resource can become non-renewable if the rate of harvest exceeds the growth rate of the resource’s stock.
    TRUE

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-02 Explain the intertemporal trade-offs with natural capital use.

12. It is more difficult to develop and administer control policies for point source pollutants than it is for nonpoint source pollutants.
    FALSE

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 02-04 Describe the different categories of pollution and contrast the degree of complexity in reducing emissions.

 

 

Short Answer Questions

13. Land is one of the three components that comprise natural capital. List the other two components discussed in the textbook and give one example of each.

The other two components of natural capital are natural resource capital and environmental capital (or ecosystems). An example of natural resource capital is water (other possible answers could include minerals and energy stocks, forests or fisheries). An example of environmental capital is the earth’s atmosphere (other possible answers could include forests, grasslands, wetlands or some other specific ecosystem).

 

Difficulty: Easy
Learning Objective: 02-01 Describe the three components of natural capital and give specific examples of each type.

14. Define the terms “renewable resource” and “non-renewable resource” and give one example of each type.

A renewable resource grows over time through biological processes so that the harvest of this resource could be sustainable over time. An example of a renewable resource is a fishery (other possible answers could include lumber, solar energy, wind power or hydroelectric power). A non-renewable resource has a fixed stock which has no processes of replenishment so that extraction of this resource is not sustainable over time. An example of a non-renewable resource is coal (other possible answers could include oil, natural gas or mineral stocks such as copper).

 

Difficulty: Moderate
Learning Objective: 02-02 Explain the intertemporal trade-offs with natural capital use.

 

 

15. Discuss why using a Zero Population Growth (ZPG) strategy to reduce output and/or to halt the rate of growth of output does not guarantee that the environmental impacts of production will be controlled.

There are two reasons why ZPG might not control the environmental impacts of production. First, even with no growth in the population, the economy could still grow resulting in increased demand for inputs from nature. Second, environmental impacts can be long run and cumulative so that even a stationary population can degrade the environment over time.

 

Difficulty: Moderate
Learning Objective: 02-03 Describe ways to reduce residuals from the economy.

16. List one example each of a local, regional and global pollutant.

An example of a local pollutant would be noise pollution (other possible answers could include litter or cigarette smoke from a neighbour). An example of a regional pollutant is acid rain which occurs in parts of Canada and the US mainly as a result of emissions from the US (other possible answers could include smog or ground level ozone). An example of a global pollutant is CO₂ which is a greenhouse gas that contributes to the problem of global warming (other possible answers could include other greenhouse gases or CFCs).

 

Difficulty: Easy
Learning Objective: 02-04 Describe the different categories of pollution and contrast the degree of complexity in reducing emissions.

Chapter 04

Economic Efficiency and Markets

 

 

Multiple Choice Questions

1. Suppose for a given market that the MWTP = 300 – 0.5Q^D and MC = 50 + 2Q^S. Assuming all market and non-market values are incorporated into these equations, the MWTP at the socially efficient level of output is equal to ________.
   A.100 units
   B. 140 units
   C. $230
   D. $250

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-01 Define social efficiency and graphically illustrate when it is achieved.

2. In the following figure the net social value is equal to ________.

   A. area c
   B. areas a + b – c
   C. areas a + b + c
   D. areas a + b

 

Difficulty: Easy
Learning Objective: 04-01 Define social efficiency and graphically illustrate when it is achieved.

 

 

3. ________ cause private and social marginal cost curves to diverge while ________ cause private demand and social marginal WTP to diverge.
   A.External benefits; external costs
   B. External costs; external benefits
   C. Market failures; public goods
   D. Taxes; subsidies

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-02 Explain why a competitive market may fail to reach a socially efficient equilibrium.

4. In the case of an open access resource, a(n) ________ takes place due to a lack of ________.
   A.externality; regulation
   B. free rider problem; property rights
   C. market failure; property rights
   D. external benefit; rivalry in consumption

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-03 List and explain the causes of market failure.

5. When production results in environmental degradation, private firms do not take the ________ into consideration when making their output decisions resulting in ________.
   A.external costs; a market failure
   B. market failure; an externality
   C. social costs; pollution
   D. market failure; pollution

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-03 List and explain the causes of market failure.

 

 

6. In the following figure, the socially efficient level of output is equal to ________.

   A. Q₁
   B. Q₂
   C. Q₃
   D. none of the choices are correct

 

Difficulty: Easy
Learning Objective: 04-04 Contrast the equilibrium outcomes in markets where externalities are accounted for versus when they are not.

7. In the following figure, social MWTP equals private MWTP plus external benefits from production. In this market, the socially efficient level of output is ________.

   A. Q₁
   B. Q₂
   C. Q₃
   D. none of the choices are correct

 

Difficulty: Easy
Learning Objective: 04-04 Contrast the equilibrium outcomes in markets where externalities are accounted for versus when they are not.

8. The fact that my consumption of a public good does not diminish your consumption is called ________ and the fact that once a public good is made available to one individual it automatically becomes available to all is called ________.
   A.non-exclusion; non-rivalness
   B. non-rivalness; free-riding
   C. free access; non-exclusion
   D. non-rivalness; non-exclusion

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-05 Explain the distinguishing characteristics of public goods and why they give rise to free riding.

 

 

True / False Questions

9. When the rate of output is at the socially efficient level, the total willingness to pay is as large as possible.
   FALSE

At the socially efficient level of output net social value which is equal to total WTP minus total costs is as large as possible.

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-01 Define social efficiency and graphically illustrate when it is achieved.

10. If social values are not reflected in the market values determined by the market demand and market supply curves, the competitive market equilibrium output will still be the socially efficient level of output.
    FALSE

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-02 Explain why a competitive market may fail to reach a socially efficient equilibrium.

11. External costs can drive a wedge between the market demand curve and the social marginal WTP curve resulting in a market failure.
    FALSE

External costs drive a wedge between private marginal costs (i.e., the market supply curve) and social marginal costs.

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-02 Explain why a competitive market may fail to reach a socially efficient equilibrium.

 

 

12. External benefits can drive a wedge between the market demand curve and the social marginal WTP curve resulting in a market failure.
    TRUE

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-02 Explain why a competitive market may fail to reach a socially efficient equilibrium.

13. In the case of open access resources and public goods, the competitive market output level will be socially efficient.
    FALSE

Market failure in both cases results in the competitive market output level differing from what is socially efficient.

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-03 List and explain the causes of market failure.

14. Free parking is an example of a pure public good.
    FALSE

Although free parking is non-excludable, it is still a rival good since when someone has taken the free parking spot no one else can use it.

 

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 04-05 Explain the distinguishing characteristics of public goods and why they give rise to free riding.

 

 

Short Answer Questions

15. Suppose the marginal willingness to pay for a certain good is represented by the equation MWTP = 490 – 0.25Q^D and the marginal cost of production equation for this good is represented by the equation MC = 40 + 2Q^S. Assuming these curves capture all market and non-market values, solve for the socially efficient level of output and the net social benefits at this level of output.

First set MWTP equal to MC to solve for the socially efficient level of output, Q^E.
490 – 0.25Q^E = 40 + 2Q^E
Q^E = 450/2.25 = 200
The MWTP at the socially efficient level of output will equal $440. The net social benefits at the socially efficient level of output will be equal to the area of two triangles. The first has height of 490 – 440 = 50 and width of 200 yielding an area of 5,000. The second triangle has height of 440 – 40 = 400 and width of 200 yielding an area of 40,000. Therefore the net social benefits at the socially efficient level of output equal $45,000.

 

Difficulty: Moderate
Learning Objective: 04-01 Define social efficiency and graphically illustrate when it is achieved.

16. List three causes of market failure and give an example of each.

A correct answer could include any three of the following: 1) external costs; 2) external benefits; 3) open access resources; and 4) public goods. Examples of external costs could include air, water or noise pollution; examples of external benefits could include positive effects from education, bee keeping or agricultural land; examples of open access resources could include ocean fisheries, common pastureland or free highways; and examples of public goods could include public parks, clean air or national defence.

 

Difficulty: Easy
Learning Objective: 04-03 List and explain the causes of market failure.

 

 

17. The following equations represent the MWTP function and the private MC function in the market for some good where a negative externality (i.e., pollution) results in damages of $12 per unit of the good produced:
    MWTP = 400 – Q^D
    MPC = 55 + 0.5Q^S
    Solve for the competitive market equilibrium output and the socially efficient level of output for this market.

The competitive market equilibrium output can be found by equating MWTP with MPC and solving for Q^M:
400 – Q^M = 55 + 0.5Q^M
Q^M = 345/1.5 = 230
To solve for the socially efficient level of output in this market we need to determine the MSC equation which in this case equals MPC plus the constant external damage cost of 12 such that MSC = 67 + 0.5Q^S. Equate MWTP with MSC and solve for Q*:
400 – Q* = 67 + 0.5Q*
Q* = 333/1.5 = 222

 

Difficulty: Moderate
Learning Objective: 04-04 Contrast the equilibrium outcomes in markets where externalities are accounted for versus when they are not.

 

 

18. The following equations represent the MWTP function and the private MC function in the market for some good where an external cost like pollution results in damages of $6 per unit of the good produced:
    MWTP = 65 – 0.5Q^D
    MPC = 2 + Q^S
    Solve for the competitive market equilibrium output and the socially efficient level of output for this market.

The competitive market equilibrium output can be found by equating MWTP with MPC and solving for Q^M:
65 – 0.5Q^M = 2 + Q^M
Q^M = 63/1.5 = 42
To solve for the socially efficient level of output in this market we need to determine the MSC equation which in this case equals MPC plus the constant external damage cost of 6 such that MSC = 8 + Q^S. Equate MWTP with MSC and solve for Q*:
65 – 0.5Q* = 8 + Q*
Q* = 57/1.5 = 38

 

Difficulty: Moderate
Learning Objective: 04-04 Contrast the equilibrium outcomes in markets where externalities are accounted for versus when they are not.

 

 

19. The following equations represent the private MWTP function and the MC function in the market for some good where an external benefit results in benefits of $9 per unit of the good consumed:
    Private MWTP = 98 – 0.5Q^D
    MC = 20 + 0.25Q^S
    Solve for the competitive market equilibrium output and the socially efficient level of output for this market.

The competitive market equilibrium output can be found by equating private MWTP with MC and solving for Q^M:
98 – 0.5Q^M = 20 + 0.25Q^M
Q^M = 78/0.75 = 104
To solve for the socially efficient level of output in this market we need to determine the social MWTP equation which in this case equals private MWTP plus the constant external benefits of 9 such that social MWTP = 107 – 0.5Q^D. Equate social MWTP with MC and solve for Q*:
107 – 0.5Q^M = 20 + 0.25Q^M
Q^M = 87/0.75 = 116

 

Difficulty: Moderate
Learning Objective: 04-04 Contrast the equilibrium outcomes in markets where externalities are accounted for versus when they are not.

 

 

20. Suppose demand for a public park (assume it is a pure public good) for two groups of consumers (A and B) is given by:
    Q_A = 12 – 2P
    Q_B = 8 – P
    where Q is the number of hectares each group would like to see incorporated into the park. If the marginal cost to provide the park is a constant $9.50/ha, what is the socially efficient number of hectares for the park?

The marginal WTP function of each individual can be found be rewriting the demand equations so price (= MWTP) is on the left hand side:
MWTP_A = 6 – 0.5Q
MWTP_B = 8 – Q
The following table shows the individual and aggregate marginal willingness to pay for each size of park:

Given the marginal cost of providing the park is $9.50/ha, the socially efficient size of the park is 3 hectares since at this size, the aggregate MWTP of the two individuals is $9.50.

 

Difficulty: Hard
Learning Objective: 04-05 Explain the distinguishing characteristics of public goods and why they give rise to free riding.

 

 

21. Suppose demand for a public park (assume it is a pure public good) for two groups of consumers (A and B) is given by:
    Q_A = 4 – 0.5P
    Q_B = 7 – P
    where Q is the number of hectares each group would like to see incorporated into the park. If the marginal cost to provide the park is a constant $3/ha, what is the socially efficient number of hectares for the park?

The marginal WTP function of each individual can be found be rewriting the demand equations so price (= MWTP) is on the left hand side:
MWTP_A = 8 – 2Q
MWTP_B = 7 – Q
The following table shows the individual and aggregate marginal willingness to pay for each size of park:

Given the marginal cost of providing the park is $3/ha, the socially efficient size of the park is 4 hectares since at this size, the aggregate MWTP of the two individuals is $4.

 

Difficulty: Hard
Learning Objective: 04-05 Explain the distinguishing characteristics of public goods and why they give rise to free riding.