ECON/ENVI 210 Spring 2005 Midterm Test – Suggested Answers
100 possible points
Part 1 Multiple Choice 2 pts each -Choose the ONE, BEST answer
1-2. Match the four TYPES of goods into the four categories. (Write the letters in the
table)
excludable
nonexcludable
rival
A
C
non-rival
B
D
A. private goods
B. artificially scarce goods
C. common property resources
D. pure public goods
3-4. Match the four EXAMPLES of goods into the four categories. (Write the letters in
the table)
excludable
nonexcludable
rival
B
C
non-rival
D
A
A. A radio station broadcasts to everyone over the airwaves, no scrambling,
B. The shower in your house.
C. The intersection at Lake Otis and Tudor, at 5 pm today.
D. An encrypted digital file of a song, available on the internet if you pay.
5. Which of the following policies could be chosen (in principle) to address the problem
of carbon emissions from gasoline automobiles
A. Ban all automobiles on tuesdays.
B. Place a tax on gasoline
C. Place a cap on total gasoline consumption and issue tradable permits to all people
with drivers’ licenses for an equal share of the total allowed consumption of gasoline.
D. Any of the above policies, in principle, could be used to address this problem
6-9. Consider the carbon emission impacts caused by Alaskans going on out-of-state
airplane trips for vacation, using the IPACT formula concept. Match the component on
the left to the example of that component on the right. Do not worry that the units in this
example do not work out perfectly. (Write the correct letter in the blanks on the right.)
__P___population of Alaska
__C___number of vacation trips per person per $10,000 of income
__A___average $ per year income per Alaskan
__T___ carbon emissions per passenger per airplane trip outside
__C___ Choice of what fraction of total vacations are taken in-state (as opposed to
flying out of state)
10. In the above example, What happens to total impact if population of Alaska doubles
and at the same time carbon emissions per passenger per airplane trip are cut in half?
A. impact doubles
B. impact quadruples
C. impact increases by 1 and one-half times
D. impact stays the same
11-12. We talked about three effects of growth. For each effect indicate which example
is the best illustration of that effect.
A. A veggieburger probably causes less impact than a steak
B. Snowmachines with 4-stroke engines produce only 5% as much pollution as snow
machines with 2-cycle engines.
C. The dollar value of total U.S. economic output per person is 10 times as high as it
was 100 years ago.
___C___Scale effect: How much is produced?
___A___Composition effect: What is produced?
__B____Technique effect: how are things produced?
13. Which pair of words best completes the sentence:
The price elasticity of demand is a measure of how responsive is the __________ when
the _________ changes.
A. supply, price
B. price, demand
C. quantity demanded, price
D. supply, income
14. NEPA, the National Environmental Policy Act, applies to which actions?
A. all government actions
B. all federal actions
C. all major federal actions
D. all major federal and state actions
15. An extreme example of negative externalities is when a fishery is being depleted
quickly and people start grabbing as much fish as they can for themselves even though
it means less for everyone else and might mean the collapse of the entire fishery
forever. Which phrase sums up this situation?
A. transactions costs
B. opportunity cost
C. liquidity trap
D. use it or lose it
16-18. Tradable permits (cap-and-trade) have been used to reduce sulfur dioxide
emissions from U.S. power plants. Suppose there are three power plants:
plant A
plant B
plant C
emissions before cap
50 tons per yr
200 tons per yr
250 tons per yr
Total
500 tons per yr
cost per ton to clean up
$100 per ton per yr
$200 per ton per yr
$400 per ton per yr
16. Suppose the government offers unlimited amounts of permits at a price of $250 per
ton. Who will buy these permits?
A. Plant A only
B. Plant C only
C. Plant B and plant C
D. All of them will wish to buy permits at $250 per ton
17. What will the total emissions be during the first year of this scheme?
A. 250 tons
B. 50 tons
C. 450 tons
D. 500 tons
19. Now suppose the government imposes a pollution cap to 250 tons and gives
everyone permits in proportion to their past pollution. So plant A gets 25 tons of permits,
B gets 100, C gets 125. Who will want to sell permits if the price of permits is $300 per
ton.
A. plant A
B. plant B
C. Both A and B
D. A, B, and C
20. Under U.S. environmental laws, which decisions must NOT be based on economic
comparison of costs vs. benefits?
A. Decision to list a species as endangered under the ESA
B. Decision whether or not to prepare an EIS
C. Decision about what should the National Ambient Air Quality Standard under the
clean air act
D. All of the above
21. In the Endangered Species Act, what does the “God Squad” do?
A. Whatever it wants – it can be used to completely bypass the Endangered Species
Act
B. The “God Squad,” actually the Endangered Species Committee, can only grant an
exemption to a listing decision.
C. The God Squad can only grant exemptions to the ESA requirements that federal
agencies consult with each other and take care not to harm endangered species when
they do things.
D. The God Squad can only be used to reduce the amount of critical habitat after a
recovery plan has been approved.
22. What have the courts said must be included among the alternatives in an EIS?
A. A no-impact alternative
B. A no-action alternative
C. A low-cost alternative
D. A “full-mitigation” alternative
23. Under the Clean Air Act who has major responsibility for implementation?
A. The Council on Environmental Quality
B. The Congress
C. The States
D. The National Science Foundation
24. Another term for “externality” is
A. spillover
B. scarcity
C. tragedy
D. elasticity
25. What is one economic reason why “the people” in the U.S. may not be able to
mount an effective campaign (perhaps a boycott??) to reduce mercury air pollution from
China?
A. The Chinese have a much more inelastic demand for electric power
B. There are too many positive externalities involved
C. Mercury pollution is excludable
D. Transactions costs – it’s hard to organize millions of people each of whom is
unaware or has a minor interest in the problem.
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Part 2: Short Answer –6 pts each except the last (8 pts)
1. Suppose Jane and Tarzan have the same income. Jane loves coconuts but Tarzan,
being a typical guy, doesn’t really care what he eats, as long as it doesn’t cost too
much. Draw possible demand curves for Tarzan and for Jane for coconuts, which show
the difference in their preferences.
J – more vertical
T – more horizontal
2. Suppose the Anchorage Assembly is considering a proposal to improve the finances
of the People Mover Bus system by raising the fares they charge, without any changes
in the service. If you know for sure that the price elasticity of demand for people moveer
bus service is 1.3, what should you tell your assembly member?
If E >1, raising price will reduce total revenue. Stupid idea!
3. If you are the king of Nepal, trying to increase the revenue from mountain climbing
permits, and you know that the elasticity of demand is 0.5, should you raise the price or
lower the price to bring in more revenue? Why?
If E <1, raising price will increase total revenue. Good idea to raise price.
4. Draw demand curves for goods that are completely elastic and completely inelastic.
Show which is which.
completely inelastic = vertical
completely elastic = horizontal
5. “Cap and trade systems are just a license to pollute. They are not a real solution to
pollution.” True or False? Explain.
False, because the cap can be set to meet social, health, or other goals and the trade
mechanism achieves the cap at low cost. The only true part would seem to be that local
hotspots could arise with lots of pollution.
6. What is the strongest argument AGAINST recycling (in general) that you have heard,
read about in this course, or experienced ? Do you agree or disagree with that
argument? Why/why not?
Personaly I think the strongest against is that there are huge transactions costs
associated with setting up and doing it. Also, recycling involves collection, transport,
and re- production of materials – many of which are heavy and/or dirty. Have you
hauled anything to Seattle lately? I think these costs need to weighed on a case by case
basis. I am not convinced for example that mixed paper recycling makes sense in
Anchorage if we have to send it all the way to Seattle.
7. What is the basic idea of the Von Hippel brothers about why viagra could be good for
endangered species?
If viagra is a more effective and cgheaper substitute for TCM, then the demand for
species parts that are part of ED treatments under TCM will be reduced.