Environmental Economics

Who determines market prices?. Firms. Consumers. Goverment. Interaction of all of the above.

Why is calculus widely used in economics?. To measure the total profits and preferences of firms and consumers. To analyze how resources are distributed. To understand and predict how firms and consumers maximize benefits. To understand long-term historical trends.

What role does ‘discounting’ play in the evaluation of environmental projects over time?. It allows future costs and benefits to be adjusted to present values, reflecting time preference. It increases the perceived value of immediate benefits over future benefits. It eliminates the impact of inflation on future values. It helps in determining the opportunity cost of capital.

Find the derivative of the function: f(x) = 2x*(2-5x)^4. Which differentation rules are required to calculate it?. f'(x) = 2*(2-5x)^4 + (2x)*(-5)*(4)(2-5x)^3; Product rule and Chain rule. f'(x) 8x* (2-5x)^3; No rules needed. f'(x) = 2x(2-5x)^3 + 2(2-5x)^4; the product rule. f'(x) = (2)*(5)*(2-5)^3; the Chain rule.

There are 7 steps in the Lagrange method. Given the function max 𝑈 = 𝑥₁^0.5 * 𝑥₂^0.5 subject to 4𝑥₁ + 6𝑥₂ ≤ 40, what is the correct Lagrangian expression in Step 2?. 𝓛 = 𝑥₁^0.5 * 𝑥₂^0.5 + λ(4𝑥₁ + 6𝑥₂ + 40). 𝓛 =x₁^0.5 * x₂^0.5 + λ(40 - 4x₁ - 6x₂). 𝓛 = 𝑥₁^0.5 * 𝑥₂^0.5 - λ(40 - 4𝑥₁ - 6𝑥₂). 𝓛 = 𝑥₁^0.5 * 𝑥₂^0.5 - λ(4𝑥₁ + 6𝑥₂ - 40).

What does the Marginal Rate of Transformation (MRT) represent in economic?. Cost difference between producing goods in two different markets. Opportunity cost of producing a good relative to its selling price in the market. Additional output generated when all resources are used for one good. Rate at which one good must be given up to produce an additional unit of another good.

What does the indifference curve of perfect substitutes look like on a graph?. Upward-sloping curve. Straight downward-sloping line. Curved line that gets flatter as it moves to the right. Right-angled L-shape.

What is the primary difference between a firm's production in the short run and the long run?. In the long run, all inputs are fixed; in the short run, only capital changes. In the short run, all inputs are fixed; in the long run, only labor is variable. In both periods, all inputs are variable, but profit maximization differs. In the short run, one input is fixed; in the long run, all are variable.

An indifference curve for goods is always downward sloping. True or False?. True. False.

According to Perloff, how does a firm’s short-run marginal cost curve relate to its supply curve?. It is identical to the firm's demand curve in competitive markets. It represents the firm's supply curve above the average variable cost. It represents the firm's supply curve below the average fixed cost. It forms the supply curve above the point where marginal cost equals average total cost.

Which of the following best captures the economic meaning of 'consumer surplus' as discussed by Perloff?. The difference between what consumers are willing to pay and what they actually pay. The profit a producer makes from selling an additional unit. The amount by which supply exceeds demand in a market. The total revenue generated by a market.

What role does 'marginal external cost' play in determining the socially optimal level of output?. It helps determine the level at which private and social costs align. It shows the cost that consumers are willing to pay for additional production. It is the benefit derived from each additional unit of production. It measures the total cost borne by producers.

Why can’t indifference curves be thick? (Tip: use the three key assumptions regarding preferences). Because thickness means preferences are inconsistent. Because thickness implies the consumer can have different levels of utility on the same curve. Because a thick curve would show a decrease in utility. Because thick curves represent budget constraints, not preferences.

What is the primary goal producers seek to achieve?. Reduce costs by minimizing production. Maximizing producer utility by adjusting quantity. Maintaining constant production levels to stabilize market prices. Achieving profit maximization and minimizing cost by optimal combination of input factors.

The concept of "marginal social cost" (MSC) includes. The sum of consumer surplus and producer surplus. The private cost plus the cost of externalities. The opportunity cost of the resources used in production. Only the private costs borne by producers.

Which of the following best describes "deadweight loss"?. The surplus enjoyed by consumers when prices are lower than marginal cost. Which of the following best describes "deadweight loss"?. The loss in total surplus that occurs when a market is not operating at equilibrium. The excess profit gained by monopolies.

A "public good" is characterized by being. Rivalrous and non-excludable. Non-rivalrous and non-excludable. Rivalrous and excludable. Non-rivalrous and excludable.

What is the purpose of welfare analysis in economics?. To evaluate the government's involvement in setting prices. To determine the optimal level of production in a market. To assess how resources are allocated and the overall well-being of consumers and producers. To measure only the profits generated by firms in a competitive market.

How is the private market demand function constructed in a competitive market?. By adding the individual demand curves of all consumers vertically. By summing up only the most efficient consumers' demands. By taking the highest individual demand and using it as the market demand. By horizontally aggregating individual demands, which represent optimal consumption points.

If you have price on the y-axis and quantity on the x-axis, which curve typically slopes upward diagonally from the origin?. Marginal cost curve. Supply curve. Demand curve. Both a and b are true.

What form of market failure is associated with negative externalities?. Monopoly pricing. Public goods. Overproduction that leads to a social cost exceeding private cost. Underproduction due to insufficient demand.

The marginal cost (MC) of producing a unit of output, such as paper, is: The total cost of all resources used to produce the paper. The minimum cost of producing a single unit of paper. The additional cost incurred to produce one more unit of paper. The revenue generated from producing an additional unit of paper.

Marginal external cost (MEC) refers to: The additional private cost to a firm of producing one more unit. The revenue generated by the firm when producing an additional unit. The total cost of producing a good for a firm. The additional cost to society, like environmental damage, from producing one more unit.

If there are no externalities, the marginal private cost (MPC) and marginal social cost (MSC) are: Different, because MEC is still present. Different, because of the costs of abatement. Greater than the marginal benefit. Equal, because there are no additional external costs.

Which formula correctly represents marginal social cost (MSC). Tip: Visualize these concepts in a figure. MSC = MPC × MEC. MSC = MEC - MPC. MSC = MPC - MEC. MSC = MPC + MEC.

The average cost (AC) of production is defined as: The total cost of producing all units divided by the quantity of output. The cost to society of producing one more unit of output. The additional cost of producing one more unit of output. The total revenue earned divided by the quantity of output.

What does the 'optimal allocation' of natural resources refer to in economics?. The level where resources are only used by the private sector to ensure optimal profitability. The allocation where the marginal benefit of resource use equals its marginal cost, maximizing social welfare. The level at which natural resources are distributed equally among all consumers. The allocation where the government strictly controls all natural resources to prevent overuse.

Which of the following best distinguishes private goods and public goods?. Private goods are only produced by private firms, while public goods are produced by the government. Private goods are non-rivalrous and non-excludable, while public goods are both rivalrous and excludable. Private goods are rivalrous and excludable, while public goods are non-rivalrous and non-excludable. Private goods benefit individuals, whereas public goods only benefit specific groups of society.

How is the social demand (marginal benefit) for a public good constructed?. By taking the highest demand from all individuals. By summing the marginal costs of production for all firms. By vertically summing the individual demand curves of all members of society. By finding the average of all individual demands.

Why might zero pollution not be an optimal level from an economic perspective?. achieving zero pollution would mean shutting down most industries, causing economic collapse. Because some level of pollution is necessary for innovation and technological progress. Because the cost of eliminating all pollution would exceed the benefits, leading to inefficient resource allocation. Because zero pollution can only be achieved in non-industrialized societies.

What distinguishes stock pollution from flow pollution?. Flow pollution accumulates over time, while stock pollution is emitted in the short term. Stock pollution persists in the environment, while flow pollution dissipates quickly. Flow pollution is caused by firms, while stock pollution is caused by individuals. Stock pollution results in immediate damage, while flow pollution has long-term effects.

Which of the following best describes the difference between positive and negative externalities, and how governments can address them?. Positive externalities benefit society but are underproduced, while negative externalities harm society and are overproduced; governments can use subsidies and taxes to address these issues. Positive externalities create private benefits, while negative externalities create private costs; governments can reduce both by banning the activities that cause them. Positive externalities involve environmental benefits, while negative externalities involve environmental harm; governments can fix these by providing public goods directly. Positive externalities only occur in public goods, while negative externalities only occur in private goods; governments can resolve both by enforcing property rights.

In a simultaneous game, what is a dominant strategy?. A strategy chosen at random that results in the same outcome as any other strategy. A strategy that depends on the other player's choice to be beneficial. A strategy that offers the player a lower pay-off than other strategies, regardless of the opponent's choice. A strategy that maximizes the pay-off for a player, no matter what the other player does.

What is a Nash Equilibrium in the context of game theory?. When each player's strategy is the best response, given the strategy chosen by the other player. When both players choose the same action to maximize mutual gains. When neither player can make a move because the pay-offs are the same. When one player has an incentive to change their strategy while the other does not.

What is a Pareto optimal outcome in game theory?. An outcome where both players achieve the highest possible pay-off regardless of strategy. An outcome where it is impossible to make one player better off without making the other worse off. An outcome where no player's pay-off is maximized. An outcome that occurs only when both players choose their dominant strategy.

In the classic Prisoner’s Dilemma, the dominant strategy for each player is to: Cooperate. Defect. Randomly alternate between cooperation and defection. Choose a strategy that maximizes the total payoff of both players.

What makes the Prisoner’s Dilemma a "dilemma"?. Both players have a dominant strategy, but playing it results in a worse outcome for both. The game only has one Nash equilibrium. Players lack complete information about the other player's choices. Cooperation is not allowed, leading to poor individual outcomes.

What do economists typically mean when they refer to economic growth?. The sustained increase in a country's Gross Domestic Product (GDP) over time. The growth of exports relative to imports. The increase in the population size of a country. The increase in the environmental quality of a nation over time.

Why might some economists argue that economic growth measured purely by GDP could be misleading?. GDP only measures the industrial output and ignores the services sector. GDP measures technological advancements without including productivity gains. GDP accounts for negative externalities, such as pollution, as positive contributions. GDP growth does not reflect improvements in human well-being or environmental sustainability.

Which statement accurately reflects the relationship between economic growth and happiness according to the literature?. Happiness always decreases as economies grow due to resource depletion. Economic growth consistently increases happiness. Economic growth has no correlation with the well-being of individuals. There is a threshold after which increases in income contribute little to happiness, as noted by the Easterlin Paradox.

Which of the following best describes the concept of planetary boundaries?. The ecological thresholds that, if crossed, trigger such a tipping point that could result in severe environmental damage. The maximum allowable amount of natural resource extraction a country can engage in without violating international agreements. The maximum number of industries an economy can support. The boundaries that separate economic sectors within a country to ensure balanced resource distribution.

According to Van Den Bergh & Kallis (2012), which of the following is a potential risk of ignoring environmental limits in pursuit of growth?. Increased inequality due to uneven resource distribution. Short-term boosts in economic growth at the expense of future sustainability. Long-term ecological collapse and resource scarcity. Over-reliance on renewable energy sources leading to inefficiencies.

What role do planetary boundaries play in the debate about economic growth?. They set limits on economic output to avoid financial crises. They encourage rapid industrialization to reduce inequality. They constitute a safe operating space for humanity: crossing a boundary could potentially trigger a dangerous tipping point in the Earth's ecosystem. They are theoretical concepts with no practical implications for policy.

Marginal damage of pollution refers to: The total cost of pollution to society. The difference between social and private costs of pollution. The cost of implementing pollution abatement measures. The additional damage caused by one more unit of pollution.

Which formula represents the socially optimal pollution level?. Marginal Abatement Cost = Marginal Benefit of Abatement. Total Private Cost = Total Social Benefit. Marginal Private Cost = Marginal Benefit. Marginal Benefit = Marginal Social Cost.

Why might economic models fail to fully capture the impact of pollution?. They assume zero pollution is optimal. They ignore marginal damage costs. They overestimate social welfare impacts. They only consider measurable costs and benefits.

Suppose the Private revenue PB = 560M, Private cost PC = 20 +400M +5M^2, External costs: EC= 3M^2, What is the private and social optimum pollution level?. Private M= 32, Social M=20. Private M= 10, Social M=16. Private M= 20, Social M=32. Private M= 16, Social M=10.

Private revenue PB = 560M, Private cost PC = 20 +400M +5M^2, External costs: EC= 3M^2. What is the efficient tax rate for attaining the social optimum? (Tip: use the answer of the social optimum of the previous question). tax rate is 60. tax rate is 55. tax rate is 65. tax rate is 96.

In the absence of regulation, firms typically pollute up to the point where. Marginal abatement costs equal zero. Marginal private benefit exceeds marginal private cost. Marginal private cost equals marginal private benefit. Marginal social cost equals marginal social benefit.

Which is an example of a Command and Control instrument?. Minimal technological requirements like "Best Available Technology". Mandatory tradable pollution permits. Education campaigns promoting social responsibility. Subsidies for renewable energy adoption.

What are four of the six criteria for selecting environmental policy instruments?. Dependability, Equity, Costs under uncertainty and Cost-effectiveness. Cost-effectiveness, Long-run effect, equality and costs under uncertainty. Dependability, Cost under certainty, Equity, Enforceability. Cost-effectiveness, enforceability, Short-term effects, Equity.

Which of the following is a critique of the Coase Theorem?. It assumes property rights can only be established publicly. It requires significant government regulation. It ignores transaction costs and the unequal distribution of power (information and wealth). It fails to account for externalities.

When property rights are clearly defined, the Coase Theorem suggests that: Bargaining between parties leads to efficient outcomes, regardless of who holds the rights. Externalities can only be resolved through taxes or subsidies. The victim of an externality must always be compensated. Efficiency can be achieved only if the government regulates the market.

Which of the following is a limitation of institutional instruments?. They always prioritize efficiency over equity. They rely solely on government enforcement mechanisms. They are ineffective due to lack of market-based incentives. They may fail due to lack of trust, high transaction costs, lack of steering power, or ineffectiveness.

Which of the following best describes the "liability principle" in environmental policy?. Polluters are responsible for compensating affected parties for the adverse effects of their actions. Victims of pollution are required to negotiate with polluters to reduce harm. The government imposes strict regulations to prevent pollution. Polluters must always halt their activities to prevent externalities.

What is the primary limitation of command-and-control instruments in environmental policy?. They can be inflexible and cost inefficient compared to market-based mechanisms. They lead to excessive government spending. They fail to set enforceable pollution limits. They do not directly address externalities.

One advantage of promoting social responsibility in environmental policy is that: It rcan fully replace market-based instruments like taxes and subsidies. It guarantees immediate reductions in pollution through strict enforcement. It completely eliminates the need for government regulations. It encourages intrinsic motivation and social norms to influence environmental behavior.

Suppose the marginal private benefit (MPB) of pollution is given by MPB=100−2M, and the marginal private cost (MPC) is MPC=10+M, where M is the level of pollution. What is the privately efficient level of pollution?. Q=40. Q=30. Q=25. Q=20.

Which of the following best describes "Cost-effectiveness" in pollution control instruments?. The ability of an instrument to achieve the pollution target at the least cost. The ability of an instrument to be implemented at a low administrative cost. The likelihood that the instrument will reduce pollution over time. The instrument's influence on social equity in the long run.

Which policy instrument is most likely to achieve a socially optimal level of pollution control cost-efficiently?. Emission standards. Direct regulation. Voluntary agreements. Tradable permits.

Tradable pollution permits are designed to: Cap pollution at a socially optimal level by enabling firms to trade emission rights. Eliminate pollution entirely. Allow firms to pollute without restriction. Increase production in non-polluting industries.

What factor is most important when determining which firm should reduce emissions when two firms have different abatement costs?. The Marginal Abatement Cost (MAC) of each firm. The total emissions produced by each firm. The profitability of each firm. The size and capital capacity of each firms.

What is a key financial difference between emissions taxes and abatement subsidies?. Taxes are costlier for firms than subsidies. Subsidies reduce emissions faster than taxes. Taxes have no effect on government finances. Taxes generate revenue, while subsidies require government spending.

Firm X has an abatement cost function Cx=100 +Zx^2 , and Firm Y has Cy=200+2Zy^2 . If the total required abatement is 20 units and both firms abate equally (Zx=Zy=10), what is the total abatement cost? And is it cost-effective?. 600; Yes, because both firms abate the same amount. 600; No, because Firm Y's cost per unit is higher, and it would be cheaper if Firm X abated more. 500; No, because Firm X has a lower abatement cost per unit. 500; Yes, because the total abatement cost is minimized.

What is the main difference between risk and uncertainty?. Risk involves no information, while uncertainty has probabilities. Risk involves probabilities; uncertainty does not. Risk and uncertainty are synonymous. Risk is always measurable, while uncertainty is not.

What does the Precautionary Principle state in the environmental context?. Never proceed with decisions under uncertainty. Use maximum available information to minimize regret. Lack of scientific certainty should not delay cost-effective measures to prevent serious or irreversible environmental damage. Always prioritize economic growth over environmental concerns.

What is the expected value of P if pollution levels are P=2 (0.2), P=5 (0.6), and P=8 (0.2)?. 4. 5. 7,5. 15.

What should be minimized when using the Minimax Regret rule?. Maximum damage caused by the worst decision. The probability of extreme events. The overall cost of all options. Maximum regret across all options.