ECON 3755 Environmental Economics MIDTERM EXAMINATION

Oct 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 of resources? 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 willingness to 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 expected to 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 1

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 proposed environmental 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 low for 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

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 reduces pollution from the competitive equilibrium level (Pollc) to the socially efficient level (Poll*). In the graph, be sure to illustrate the benefits, costs, and dead weight loss removal from the regulation.

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 an example. c. How you could use CVM estimate(s) for a benefits transfer? Explain by first defining what a 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?

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: QSC = 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 and represent 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 your diagram 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 general topic discussed. What general problem and/or solution was raised? [Note: you cannot describe an article that you presented].