Environmental Economics Exam 1

Who are the primary players in the economy?

Firms, households, and governments

Which of the following is an example of an ecosystem service?

Wetlands filtering water naturally

From the economist perspective, the government should intervene to solve market failures. (true or false)

True

There are three important behavioral underpinnings to economics. They are:

People respond to incentives, people make decisions at the margin, people will act in their best interest

Pollution occurs when...

When waste emissions from production and consumption activities exceed the environment's capacity to absorb and transform wastes into harmless substances

The Environmental Kuznets Curve depicts the relationship between:

Environmental quality and economic development, suggesting that environmental degradation initially increases with economic growth, then decreases after reaching a certain level of income.

Trees filtering air pollutants (ecosystem service type: regulating, cultural, provisioning or supporting?)

Regulating

Birdwatching (Ecosystem service type: Regulating, cultural, provisioning or supporting?)

Cultural

Nutrient cycling (Ecosystem service type: Regulating, cultural, provisioning or supporting?)

Supporting

Wetlands storing floodwater (Ecosystem service type: Regulating, cultural, provisioning or supporting?)

Regulating

Reefs supporting fish that we eat as food (Ecosystem service type: Regulating, cultural, provisioning or supporting?)

Provisioning

Hiking in a canyon (Ecosystem service type: Regulating, cultural, provisioning or supporting?)

cultural

Bats eating insect pests

regulating

According to economics, what is the optimal level of pollution?

The level where marginal benefit of pollution is equal to the marginal cost of pollution

The environmental Kuznets curve (EKC) hypothesizes that:

Environmental degradation first increases, then decreases as income levels rise

When people make decisions "at the margin" they...

weigh the benefits and costs of one additional unit

The concept of opportunity cost in environmental ethics

the best alternative resource that is foregone

How can economics contribute positively to environmental issues

By creating market-based strategies like cap-and-trade systems and carbon taxes

A government introduces a subsidy to encourage the adaptation of electric vehicles, what could be a possible unintended consequence of this policy

Congestion due to more vehicles on the road

Consumer Surplus is:

Consumer surplus is the difference between the highest price a consumer is willing to pay and the price they actually pay. It represents the net benefit to consumers.

Producer surplus is:

Producer surplus is the difference between the price a producer receives for a good or service and the minimum price they are willing to accept. It represents the net benefit to producers.

Social surplus is comprised of ______ and _______

Consumer surplus and Producer surplus

Externalities arise soley because individuals are unaware of their actions

False, it is because they are not forced to consider and account for their actions

A school of fish is an example of a public good for a community of fisherman

False (A school of fish is a common good)

(Club, Private, Public, Common Good) A deli Sandwich

Private good

(Club, Private, Public, Common Good) City Firework Display

Public Good

(Club, Private, Public, Common Good) Forest

Common Good

(Club, Private, Public, Common Good) The Atmosphere

Common good

(Club, Private, Public, Common Good) Netflix Subscription

Club Good

(Club, Private, Public, Common Good) The Ocean

Common Good

(Club, Public, Private, Common Good) A house

Private Good

(Club, Private, Public, Common Good) iPhone

Private Good

(Club, Private, Public, Common Good) Gym Membership

Club Good

Suppose the government passes a law requiring all water treatment facilities to reduce the amount of pollution they release into the environment. However, because the government cannot perfectly monitor each facility's pollution abatement efforts, some facilities fail to comply fully with the requirements. This is an example of:

Moral Hazard

moral hazard occurs when...

people cannot observer the actions of other people

adverse selection occurs when...

people cannot observe the type of goods/other people

excludability means:

can prevent someone from using

rivalry means:

one person's consumption reduces good's availability to others.

Public goods are ______ and ______

non-rival and non-excludable

Why are public goods under provided in private market?

Free Riders

Common pool resources are ____ and _____

rival and non-excludable

What type of resources can cause tragedy of the commons

common pool resources

the basic model of a fishery shows that:

the maximum sustainable yield is rarely optimal

Coasean bargaining:

defining property rights for environmentalgoods and letting people negotiate over the price and quantity

Pigouvian taxation:

setting green taxes or subsidies that reflect economic values for environmental protection

Tradable pollution permits:

creating a fixed number of permits to pollute and letting people buy and trade these permits in a market setting

Is Coasean bargaining a viable means of addressing most externality issues?

No. Works only when property rights are well-defined & there are few affected parties