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ECON 3755 Environmental Economics

MIDTERM EXAMINATIONOct 27, 2009

This exam has 5 sections on 4 pages. Please complete all sections by following instructions in each.The exam is 1 hour and 20 minutes long. Good Luck.

SECTION 1:

Please answer 10 of 15 questions in this section in the space provided. For multiple choice

questions, place an X in the box next to the answer that best applies. Each question is worth 1

mark (Total: 10 marks)

1. The Meadows diagram is thought to represent: An optimistic view of world development. A pessimistic view of world development. A neutral view of world development.

2. Provide an example of a non-accumulative pollutant:___________________________________________________________________________.

3. Complete this sentence: The Second Law of Thermodynamics generally states that___________________________________________________________________________.

4. What is the relationship between a market failure and a socially efficient allocation ofresources?

A market failure causes a socially-efficient allocation of resources to be realized. A market failure causes a socially-efficient allocation of resources not to be realized. No direct relationship between the two.

5. A free market competitive economy cannot produce a socially-efficient allocation of resources. True. False.

6. In the Demand/Supply diagram, the demand curve is _____________ the marginal willingnessto pay curve when a consumption externality exists in the private market.

Generally equal to

Generally to the right of Generally to the left of

7. Suppose the net benefits of an environmental policy in 2006 equals $50 and in 2010 is expectedto equal $150. At a 4% discount rate, the 2-year net present value of the project (in 2006$)equals approximately:

$194.23 $128.23 $178.22

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8. In Canada as a whole, all major air, water, and land pollution emissions are on the rise. True. False.

9. Describe two general types of values that the Dose-Response Method can be used to measure:____________________________________________________________________________

____________________________________________________________________________

10.In cost-benefit analysis, the net benefits decision rule determining whether or not a proposedenvironmental policy should be supported on economic grounds typically requires

the net benefits to be maximized. the net benefits to be no less than zero. the net benefits to be less than zero

11.When a negative production externality is present in a competitive economy, prices are too lowfor the good that causes the externality.

True False

12.Provide an example of a non-point-source pollutant:____________________________________________________________________________

13.Briefly define the Coase theorem:____________________________________________________________________________

____________________________________________________________________________

____________________________________________________________________________

14.When are uniform standards not cost-effective?____________________________________________________________________________

____________________________________________________________________________

____________________________________________________________________________

15.Polluters prefer: Emissions standards Liability laws

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SECTION 2:

Please answer 2 of 3 questions in this section in your examination booklets. Each question is

worth 5 marks (Total: 10 marks)

16.Graph and label a typical environmental Kuznets curve.17.Graph and label an example of using the Hedonic Price Method to derive a total willingness to

pay estimate for a reduction in air pollution.

18.Use an MAC/MD graph to illustrate the benefits and costs of a pollution regulation that reducespollution from the competitive equilibrium level (Pollc) to the socially efficient level (Poll*). Inthe graph, be sure to illustrate the benefits, costs, and dead weight loss removal from theregulation.

SECTION 3:

Please answer 1 of 2 questions in this section in your examination booklets. Each question in

worth 15 marks (Total = 15 marks)

19.The Contingent Valuation Method (CVM) is a popular tool for valuing environmental benefits.a. What is the CVM? What environmental value(s) does this method focus on? Use a diagram

to help explain how the CVM captures benefits.

b. How would you perform a CVM study? Explain using the Exxon Valdez oil spill as anexample.

c. How you could use CVM estimate(s) for a benefits transfer? Explain by first defining whata benefits transfer is, and then describing at least two benefit transfer alternatives.

20.Liability laws can help eliminate environmental externalities in a competitive economy.a. Briefly describe how liability laws work as they are applied to environmental degradation.b. Use the MAC/MD diagram to illustrate the costs to polluters and the benefits to 3rd parties

from the implementation of liability laws (i.e., identify costs and benefits in the diagram).Identify the net benefits.

c. What are the biggest issues or problems associated with implementing liability laws?

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SECTION 4:

Please answer the following question in this section in your examination booklets. The question is

worth 15 marks (Total: 15 marks)

21.Suppose a competitive (C) economy exhibits the following demand (QDC) and supply (QSC)curves:QS

C= 8P

QDC

= 110 2P

However, negative production externality exists in the economy. The marginal social cost(MSC) curve is:

MSC = 8P 10

a. Compute the competitive and socially efficient equilibrium prices and quantities andrepresent them in a Demand/Supply framework.

b.

Compute net social value in the socially efficient vs. competitive equilibriums.

c. Calculate the dead-weight loss created in the competitive market and show this on yourdiagram in part (a).

SECTION 5:

Please answer the following question in this section in your examination booklets. The question

is worth 5 marks (Total = 5 marks)

22.What student presentation did you find most interesting in class so far? Describe the generaltopic discussed. What general problem and/or solution was raised? [Note: you cannot describean article that you presented].