Econ 2100 UGA Test 1 and 2 answers

a producer releases chemical waste into a stream. The negative effects of chemical waste release are not captured by the private market leading to a market failure.

Suppose Q is the amount of chemical waste in thousands of barrels, and P is the price per barrel. The marginal social benefit (MSB), marginal private cost (MPC) and marginal external cost (MEC), respectively, are

MSB= 50 - 0.3Q

MPC= 10 + 0.5Q

MEC= 0.2Q

The competitive equilibrium quantity and price, respectively, are

50, 35

(T/F) In theory, the market demand curve for a pure public good can be obtained by a horizontal summation of individual demand curves for that good.

False

why: it's a vertical summation

(T/F) A competitive equilibrium in the presence of a negative production externality for a good will lead to overproduction of that good because the market ignores the cost associated with the externality.

True

Assume that production level (Q) is 50 units. If the marginal private cost (MPC) and marginal social cost (MSC) of production, respectively, are

MPC= 10 + 0.2Q

MSC= 10+ 0.5Q

Then, the marginal external cost (MEC) at Q=50 is

15

When a negative production externality is generated, then the marginal social cost is

a) the same as marginal private cost

b) is equal to marginal private cost plus marginal external cost

c) is equal to marginal private cost minus marginal external cost

b) is equal to marginal private cost plus marginal external cost

a producer releases chemical waste into a stream. The negative effects of chemical waste release are not captured by the private market leading to a market failure.

Suppose Q is the amount of chemical waste in thousands of barrels, and P is the price per barrel. The marginal social benefit (MSB), marginal private cost (MPC) and marginal external cost (MEC), respectively, are

MSB= 50 - 0.3Q

MPC= 20 + 0.5Q

MEC= 0.2Q

the allocatively efficient quantity and price, respectively, are

30, 41

(T/F) Suppose the inverse demand curves (for a public good) for two consumers are given as follows:

Consumer#1: p1= 10 - Qd

Consumer#2: p2= 15 - 0.5Qd

Where p1, p2 are the demand prices ($/unit) or willingness to pay for the two consumers, respectively.

Then is the market demand curve for this public good is given as P= 25 - Qd ?

False

why: it should be 25 - 1.5Qd (add the equations)

(T/F) A pure public good is one that is nonrival in consumption and yields benefits that are excludable

False

why: non-excludable

Following are the demand estimates for an air filtration system in two districts of a town:

District#1: Q=40 - 10p1

District#2: Q=5 - 5p2

Where Q is the percent of a pollutant to be filtered by the system, and P is the price in millions of dollars. Determine the town's market demand for this public good.

P = -0.3Q + 5

(T/F) a pure private good is one that is nonrival in consumption and yields benefits that are excludable.

False

why: private good is rival and excludable

Under the Coase Theorem, when property rights to a resource belong to the recreational Users (assuming all conditions of Coarse Theorem hold), the users are willing to accept a payment (p) for each unit, to have the resource polluted through production up to the level of allocative efficiency as long as:

a) MEC > p

b) p > MEC

c) p < 0

b) p > MEC

(T/F) for the Coase Theorem to lead to an efficient solution even when property rights are assigned, damages need not be measurable

False

why: they need to be measurable

(T/F) an economic model involves making one or more assumptions about the underlying market conditions and/or individual behavior

True

(T/F) in the Materials Balance Model, by recycling, it is possible to prevent flow of residuals back into nature?

False

why: never possible to prevent flow

In the Materials Balance Model, an increase in population (holding all else constant) will lead to ______ extraction of natural resources

a) no change

b) can't be determined

c) lesser

d) greater

d) greater

A circular flow model involves flows of economic activity through

a) neither factor nor output markets

b) factor and output markets

c) factor markets

d) output markets

b) factor and output markets

Suppose the market for electricity is in equilibrium, if there is a decrease in supply of electricity (all else constant) how would this impact the equilibrium price and quantity?

a) decrease both

b) decrease price but increase quantity

c) increase price but decrease quantity

d) increase both

c) increase price but decrease quantity

if Qs = 4p - 2 is the supply equation for an item where Qs, P are the quantity supplied and price, respectively, of that item, then the inverse supply equation associated with this item is

p = qs/4 + 2/4

(T/F) a change in demand for a good is the result of a change in the (current) price of that good.

False

why: change in quantity demanded

The market demand and supply equations for an item, respectively, are as follows:

Qd = -5p + 10

Qs = 16p - 4

then the equilibrium price (Pe) is

2/3

The market demand and supply equations for an item, respectively, are as follows

Qd = -5p + 10

Qs = 16p - 4

then the equilibrium quantity (Qe)

is

6.67

(T/F) a change in the quantity demanded for a good is the result of a change in the future price expectation of that good.

False

why: change in demand

(T/F) the law of supply states that there is an inverse (negative) relationship between the price of an item and the quantity supplied of that item.

False

why: law of supply indicates a positive relationship - law of demand is what indicates negative relationship

If the following is the demand equation for an item:

Qd = 100 - 3p

where Qd, P respectively are the quantity demanded (lbs) and current price ($/unit) of an item, then its inverse demand equation is

P = -0.33Qd + 33.33

(T/F) a change in quantity supplied for a good can be depicted as a movement along the demand curve for that good.

False

why: movement along the supply curve

Which one of the below is part of the command and control approach to environmental problems

a) technology based standard

b) pollution charge

c) subsidy

a) technology based standard

Suppose that two firms, firm 1 and firm 2, release pollutants into the air that exceeds the emissions standard. To meet the standard, 10 units of the pollutant must be abated in total. The firms face the following marginal abatement costs:

MAC1 = 10 + A1

MAC2 = 5 + A2

The firm wide abatement levels (A1, A2) that minimize total costs are

2.5, 7.5

A uniform national abatement standard might not lead to allocative efficiency because

a) uniformity of pollutants

b) perfect information

c) regional differences

c) regional differences

(T/F) a performance based environmental standard stipulates a particular technology to be used for achieving a pollution limit.

False

why: a technology based standard does this - performance based standard is where you can use whatever tech you want as long as you reach the goal

In a cap and trade system with two polluters with different costs of marginal abatement (MAC), the high cost polluter will buy (identify the strict condition) a permit from the low cost polluter as long as

a) price charged by the low cost polluter is lower than the MAC of high cost polluter

b) price charged by the low cost polluter is equal to the MAC of high cost polluter

c) price charged by the low cost polluter is higher than the MAC of high cost polluter

a) price charged by the low cost polluter is lower than the MAC of high cost polluter

(T/F) the main distinction between the market based approach and the command and control approach is the way in which environmental objectives are implemented

True

Suppose a firm faces an emission charge implemented as a marginal tax (MT) of $10 and that its marginal abatement cost, MAC = 0.5A. Calculate the abatement level (A) at which the firm would be indifferent between paying a tax and abatement.

20

A Pigouvian tax implemented as a charge on the pollution causing product is difficult to impose in practice because

a) the dollar value of marginal external cost at the socially efficient level of output is difficult to identify

b) the dollar value of marginal external cost at the socially efficient level of output is known

c) it increases the level of pollution

d) Pigou was against it

a) the dollar value of marginal external cost at the socially efficient level of output is difficult to identify

The deposit/refund system is intended to capture _____ between the private and social costs of improper waste disposal.

a) the difference

b) the sum

c) the product

d) the ratio

a) the difference

Suppose that for some abatement equipment market, the marginal social benefit is

MSB = 1000 - 1Q, and marginal private benefit is

MPB = 400 - 0.8Q, where Q refers to units of abatement equipment.

The Pigouvian subsidy must equal ____ at the socially efficient output level

600 - 0.2Q

In the US market for chlorofluorocarbons (CFCs), the phaseout of CFCs lead to a(n) ______ in the ______ of CFCs.

a) increase, supply

b) decrease, supply

c) increase, demand

d) decrease, demand

b) decrease, supply

Ozone depletion impacts the earth's ozone layer in the

a) stratosphere

b) troposphere

c) water

d) farms

a) stratosphere

a carbon tax is considered a better alternative to gasoline tax because it is

a) not as broad based as the second tax

b) more broad based compared to the second tax

c) less broad based compared to the second tax

d) not a tax

b) more broad based compared to the second tax

Consider the market for an ozone depleting substance where the market demand and supply equations, respectively, are as follows

Qd= 30 - 3P

Qs= 6 + 0.5P

where P is the per unit price.

If a $1 excise tax is levied on the seller, how much of the excise tax (approx) is borne by the consumer?

$0.14

Consider the market for an ozone depleting substance where the market demand and supply equations, respectively, are as follows

Qd= 30 - 3P

Qs= 6 + 0.5P

where P is the per unit price.

If a $1 excise tax is levied on the seller, what is the price paid by the consumer?

$7

climate change _____ due to nature

a) is solely

b) might be

c) is only

d) is not

b) might be

Which of the following taxes have not been commonly proposed to tackle carbon dioxide emissions

a) capital gains tax

b) carbon tax

c) btu tax

d) gasoline tax

a) capital gains tax

Consider the market for an ozone depleting substance where the market demand and supply equations, respectively, are as follows

Qd= 30 - 3P

Qs= 6 + 0.5P

where P is the per unit price.

If a $1 excise tax is levied on the seller, then the new supply curve is

Q's = 0.5P + 5.5

_____ method uses the complementary relationship between the quality of a natural resource and its recreational use value

a) travel cost

b) averting expenditure

c) hedonic price

d) contingent valuation

a) travel cost

under the _____ method, a good or service can be valued for characteristics it possesses.

a) travel cost

b) averting expenditure

c) hedonic price

d) contingent valuation

c) hedonic price

To estimate the incremental benefits of an environmental program, the travel cost method is adopted with the following pre and post recreational inverse demand functions:

pre-policy: P = 40 - 0.05V1

post-policy: P = 80 - 0.05V2

where V is the number of visitors and P is the admission fee.

If the admission fee is $10 per visitor, then the number of pre and post policy visitors, V1 and V2, respectively, are

600, 1400

Installing a water filtration system is an example of

a) travel cost

b) averting expenditure

c) direct estimation method

d) physical linkage approach

b) averting expenditure

To estimate the incremental benefits of an environmental program, the travel cost method is adopted with the following pre and post recreational inverse demand functions:

pre-policy: P = 40 - 0.05V1

post-policy: P = 80 - 0.05V2

where V is the number of visitors and P is the admission fee.

If the admission fee is $10 per visitor, then the number of pre and post policy visitors, V1 and V2, respectively, the change in customer surplus as a result of the program is

40,000

the market price of a house depends on several attributes including the environmental quality around the house. Thus, environmental quality has a

a) implicit price

b) contingent valuation

c) averting expenditure

d) travel cost

a) implicit price

The _____ method measures benefits based on a technical relationship between an environmental contaminent and its observed damage.

a) political referendum

b) contingent valuation

c) damage function

d) hedonic price

c) damage function

if an individual derives benefits from knowing a natural resource exists and is being preserved, this is an example of _____ of the resource.

a) user value

b) existence value

c) direct user value

d) indirect user value

b) existence value

____ costs provide an accurate measure of resource utilization

a) capital

b) accounting

c) out of pocket

d) explicit and implicit

d) explicit and implicit

____ cost does vary based on the amount of abatement.

a) capital

b) operating

c) fixed

d) all

b) operating

Suppose the economic cost of an environmental policy is $600 and the implicit cost is $400. Then accounting (explicit) costs are $___

200

Suppose the total social cost of abatement is given as TSC = 0.6A^2 + 12A where A is the level of abatement in units. As a result of an environmental policy, if the level of abatement is increased from 20 to 30 units, the incremental cost of abatement is $___

420

A higher discount rate (all else constant) would imply a _____ of costs compared to that of a lower discount rate

a) lower present value

b) same present value

c) higher present value

d) neither higher nor lower

a) lower present value

Suppose it is estimated that the present value of costs associated with a project are estimated at $0.5 million and the present value of benefits at $1 million. Then, the benefit cost ration of the project is ____ and the project is considered _____

a) $2, not feasible

b) $0.5, not feasible

c) $2, feasible

d) $0.5, feasible

c) $2, feasible

The present value of benefits of a project that is estimated to yield $110 in benefits a year from today is $ ____. Assume a discount rate of 10% per year.

$100

The present value of net benefits can be interpreted as the

a) benefits per dollar of cost

b) excess of benefits over costs

c) benefits per dollar of cost and excess of benefits over costs

d) has no useful meaning

b) excess of benefits over costs