EEP 1/Econ 3 Peter Berck Exam II Fall 2012
Do all four questions. Points are shown in ().
1. (5) Your assignment is to find the value of urban farming on a highly visible lot. Someone else
will calculate the costs of farming so you do not have to be concerned with them. You have
already discovered that the actual product of the farming, tomatoes, is worth in total $15. You
decide to conduct a contingent valuation study so see if this activity has value to nonparticipants.
a. (1) Why do you do a stated rather than revealed preference study?
b. (2) What question will you ask, who will you ask it to, and how will you vary your
question to get a demand curve?
c. (2) Name at least 3 other things you will do as part of your contingent valuation survey.
(Hint: these things need to be done for every such survey)
2. (8) This question refers to the diagram below, which describes a firms choice of inputs. Write
your name on the diagram and turn it in with your exam. The price of “Other Stuff) is 4.
a. (2) What is the price for “Clean Air” for the solid line? For the dashed line? What
economic term of are (word) is used to describe these lines?
b. (1) Draw an isoquant tangent to both of these lines. Identify the points of tangency on
your graph (you may just put a dot of the graph to show the point. ) Label the one on
the high clean air price line, “with high price.”
c. (1)Make a chart with two columns and show the amount of Clean Air demanded by the
firm as a function of the price of clean air.
d. (2)Now draw one further line on your diagram and use it to show the cost for the “with
high price” input bundle if the price of clean air were the low price instead. Compare
the cost of choosing this bundle at the low and high price for air.
e. (2) Explain why your findings are important for pollution control. You will want to
mention effluent standard and effluent tax.
3. (4) Answer all four parts
a. (1)Define the cost function, C(q).
b. (1) Explain why the shutdown point is at the mimimum point of AVC.
c. (1) Explain why the average cost curve is likely U-shaped.
d. (1) Define marginal cost.
4. Readings: Do A or B
a. (3) What is grandfathering and new source review ? How would you undermine the
intent of the Clean Air Act with respect to new source review if your political party was
beholden to the coal and petroleum industries?
b. (3) What are three important concepts from Krutilla’s “Conservation Reconsidered”?
Briefly define each.
Other Stuff
200
160
120
80
40
0
0
4
8
12
16
20
Air
24
28
32
36
40