Geog 3890 – Ecological Economics
Instructor: Paul Sutton
Spring 2011
Name: __________________________
Exam #2: Parts III & IV (Chapters 8-12)
Multiple Guess (20 pts at 2 per question): Write the letter representing the Best
answer in the blank space next to the question number. No penalty for guessing.
1)____________ The Marginal Utility of a Good or Service?
A) Increases with increasing consumption
B) Decreases with increasing consumption
C) Is fixed by the price of the good D) Is constant for a given individual
E) Is unknowable
2)_____________ Which of the following is NOT typically regarded as a factor of
production?
A) Labor
B) Raw Materials
C) Capital Equipment
D) Consumer Goods
3)______________ What does ‘ceteris paribus’ mean ?
A)
B)
C)
D)
E)
‘Regardless of the initial distribution of income’
‘Assuming rational behavior on the part of firms and households’
‘Assuming all firms and household have perfect information’
‘Assuming all other things variables are held constant’
None of the above.
4)______________ A ‘Pure Public Good’ must be:
A) Excludable and Rival
C) Nonrival and Excludable
B) Excludable and Nonrival
D) Nonrival and Nonexcludable
5)______________ Which of the following is NOT a failed assumption of the
equimarginal principle of maximization?
A) Perfect information for buyers and sellers
B) ‘Lumpiness’ of units
C) Diminishing Marginal Utility
D) Rational Behavior of Consumers
For questions 6-8 refer to the figure above
6)_____________When the stock of the biotic resource is at Carrying Capacity the
annual growth rate of the resource is depicted as:
A) The Maximum Sustainable Yield
B) The distance from S’ to S
C) The distance from R” to R
D) The distance from Q” to Q
E) Zero
7)_____________Assume the Government or Society somehow insured that the ‘Effort’
of harvest was fixed at the value E (not E’ or E”). This would
insure that the Resource stock level would equilibrate at what?
A) K
B) CD
C) MSY
D) S’
E) Q”
8) ______________ What happens to the resource stocks if they are harvested to a point on
the ‘Resource Stock’ axis between zero and the point labeled ‘CD’?
A)
B)
C)
D)
The resource growth rate is negative and the resource goes extinct.
All harvesting must cease in order for the stock to get replenished.
The resource growth rate is zero but any harvesting will push resource to extinction
This is the ‘sweet spot’ harvest level that produces maximum sustainable yield
9) ______________ What statement best describes the profit maximization points
(PMP) relative to Maximum Sustainable Yield (MSY) for wild vs
farmed fish?
A)
B)
C)
D)
The PMP of wild fish is at the MSY but PMP for bred is below MSY
PMP for wild fish is lower than the MSY stock but bred fish PMP is higher than MSY
The PMP for both wild and bred fish is at the stock level that produces MSY
The PMP for wild fish is above the MSY and the PMP for bred fish is below the MSY
10) _____________ What statement below best describes the elasticity of demand for
water:
A)
B)
C)
D)
Water has inelastic demand at all levels of consumption.
Water has elastic demand at all levels of consumption
The elasticity of demand for water increases with increasing consumption
The elasticity of demand for water decreases with increasing consumption
True or False (10 points): Put a “T” or an “F” indicating True or False respectively
in the blank space by each question. No penalty for guessing.
1) _____________ Global estimates of the dollar value of ecosystem services
(valued at the margin) are roughly 25% of the value of the
global economy (Global GDP).
2) _____________ The value of ecosystem services in the distant future
approaches zero according the neoclassical economic
valuation method called ‘Net Present Value’.
3) _____________ The optimal pollution level for CO2 emissions is zero.
4) _____________ “Cap and Trade” policies for CO2 emissions are an attempt to
internalize external costs.
5) ____________ The Coase Theorem states that if external costs are internalized
then optimum efficiency will occur in a perfectly competitive
market where polluters and victims of pollution can trade rights
to pollute and be affected by pollution.
6)______________ Ecosystem services are distributed uniformly in space.
7)______________ The atmosphere’s waste absorption capacity is a congestible
public good.
8)_______________ War is an internalized external cost associated with Fossil Fuels.
9)_______________ “Open Access Regime” is a more precise was of stating what has
historically been described as “The Tragedy of the
Commons”.
10) _____________ The price of gasoline at the pump accurately reflects the sum of
Marginal External Costs, Costs of Extraction, and Royalties.
Written Answers (70 points from 5, 10, and 15 points): The following questions
require written, computational, and /or graphical responses.
Supply, Demand, and Consumer Surplus - Short Answer (5 pts): Draw a graph
representing a supply curve and a demand curve. Label your axes and the market clearing
point that maximizes producer profits and consumer utility. Define “Consumer Surplus”
and explain it using the figure you have drawn.
External Costs and Fossil Fuels - Short Answer (5 pts): Describe and define five
externalities associated with the extraction and use of Fossil Fuels. Identify who bears
these costs and at what spatial and temporal scale they take place (e.g. local, regional
global for ‘spatial’ and generational or intergenerational for ‘temporal’)
The Competitive Market - Medium Answer (10 pts) : What is a competitive market?
How does traditional economic theory depend on competitive markets? What conditions
must exist in order for a market to be ‘competitive’? What real world markets meet these
conditions? What real world markets do not meet these conditions?
Elasticity of Demand - Medium Answer (10 pts): What is elasticity of demand?
Describe how elasticity of demand for an individual would change over time for fossil
fuels. Describe how elasticity of demand changes with consumption level for water. Use
the concept of elasticity of demand to explain why major oil companies such as BP and
Exxon-Mobil would be interested in suppressing the development of things like electric
vehicles.
The Basic Market Equation - Long Answer (15 pts):
Define the terms in the basic
market equation to the right.
Explain how this equation holds
for ‘Consumption’ and explain
how this equation holds for
‘Production’.
Describe several
limitations and/or assumptions of
the basic market equation.
Definition of Terms
How equation holds for Consumption
How equation holds for Production
Assumptions and Limitations
Externalities and Land – Short Answer (5 pts): Property rights and land ownership
raise some very interesting and controversial issues from the perspective of ecological
economics. Discuss issues associated with the value of Ricardian land and externalities,
the supply and demand for land in the world today, and controversy over Government
“takings” of privately held land via eminent domain, limitations on development rights,
or taxation.
Maximizing Profits from Renewable Biotic Resources – Short Answer (5 Points)
Explain the figure below in your own words and write a one sentence summary of the
important point this figure demonstrates.
Complementarity and Substitutability – Short Answer (5 Points)
Define the terms ‘complementarity’ and ‘substitutability’ as they pertain to economic
goods. How does traditional economics differ from ecological economics in the way they
think about these concepts?
Net Present Value – Short Answer (5 Points)
Suppose I promised to give you $100,000 ten years from now. What would the Net
Present Value of that $100,000 be? (Provide a number) Assume you could get an annual
7% rate of return. How does this idea of ‘Net Present Value’ come into play with respect
to our understanding of natural resources? Explain.
Profits, Patents and Pharmaceuticals – Short Answer (5 Points)
Assume some major pharmaceutical company has the patent for a drug that mitigates the
symptoms and contagiousness of AIDS. Also assume many poor AIDS victims in Africa
cannot afford the profit maximizing price for this drug. Explain how a traditional
economic perspective on this situation is both a market failure and a moral failure.