Environmental and Natural Resource Economics

Examination 1
These multiple choice questions are from the exam bank. If you believe one or more answers are
not correct, then speak with the instructor. He is human and makes mistakes.
Lecture 1 - Introduction to Environmental and Natural Resource
Economics
1. What is the Environmental Economics?

a) The branch of economics that studies how environmental and natural resources are developed
and managed.
b) The branch of economics that shows how to exploit natural resources as quickly as possible.
c) The psychological study of relationships between humans and natural resources.
d) All answers above are correct.
2.Which of the following answers applies to renewable natural resource?

a) Once the renewable natural resource is used, it is gone forever.

b) Renewable resources can be replenished.
c) Renewable resource are costly to extract.
d) Renewable resources can be harvested at any rate without harming future supplies.
3. Which of the following answers is a nonrenewable natural resource?

a) Fish and cattle.

b) Petroleum.
c) Human Resources.
d) All answers above are correct.
4. Why study environmental economics?

a) Environmental economics to bring harmony to the economic system and the environment.
b) Study environmental economics to bring harmony to the economic system and the political
system.
c) Study environmental economics to find harmony with oneself.
d) Study environmental economics to find harmony with other people.
5. When economists say a product has a high cost for a good, what does it mean?

a) Good is available in large quantities to the market.

b) A monopoly is supplying a goods.
c) Demand is very high relative to supply.
d) All answers above are correct.
6. Which items from list below is a positive externality?

a) Public Immunization.
b) Traffic jams.
c) A neighbor’s barking dog.
d) All answers above are correct.
7. Since 1886, the British Telecom supplies telephone and communication services to its citizens.
It has a 100% market share. What kind of company is it?

a) Oligopoly.
b) Duopoly.
c) Monopoly.
d) None of the answers above is correct.
8. Which good below is a public good?

a) Military and police.

b) Used car market.
c) Insurance from a private company.
d) Petroleum imported from a government-controlled oil field.
9. What is Cost-Benefits Analysis?

a) Help a person or institution to choose a project with the lowest benefits and highest costs.
b) Help a person or institution to choose a project with the highest benefits and lowest costs.
c) Help a person or institution to choose a project with the highest benefits and costs.
d) Help a person or institution to choose a project with the lowest benefits and costs.
10. What is an open resource?

a) Property owned by everyone or absence of ownership.

b) Property owned by the government.
c) An LLP company owns the property.
d) None of the answers above is correct.
11. What is the meaning of equity?

a) People own equally all of the society’s resources.

b) Government representatives only have right to use resources.
c) Law representatives only have right to use resources.
d) None of the answers above is correct.
Answers:

1. a 2. b 3. b 4. a 5. c 6.a
7. c 8. a 9. b 10.a 11.a

Lecture 2 - Growing Population and Economic Growth

1. Which Law of Thermodynamics states “The total entropy of any isolated thermodynamics
system always increases over time, approaching a maximum value?”
a) The 1st Law of Thermodynamics.
b) The 2nd Law of Thermodynamics.
c) The Coase Theorem.
d) The Porter Hypothesis.
2.In which factor more people consume goods and services?

a) Economic growth.
b) Population growth.
c) Economic stagflation.
d) Financial growth.
3.Which countries are big recyclers?

a) Low-income countries.
b) Low population countries.
c) High population countries.
d) High-income countries.
4.Which Law of Thermodynamics states “The change in the internal energy of a closed
thermodynamic system is equal to the sum of the amount of heat energy supplied to or removed
from the system and the work done on or by the system?”

a) The 1st Law of Thermodynamics.

b) The 2nd Law of Thermodynamics.
c) The Coase Theorem.
d) The Porter Hypothesis.
5.What is entropy?

a) Energy used in economic activity like production, transportation, and consumption.

b) Economic differences equalize over a decade.
c) Energy differences equalize over time.
d) All energy comes from the environment.
6.Which factor allows society to produce more goods and services?

a) Financial growth.
b) Economic growth.
c) Population growth.
d) Economic stagflation.
7. Why is the world’s population growth rate slowing?

a) People are becoming more educated.

b) Children are expensive in both money and time.
c) Governments provide little support to their people.
d) Taxes are increasing over time.
8. Why do Malthusian ideas keep coming back?
a) His idea is proved correct in the majority of cases.
b) He believed that the end of the world will be at the beginning of 21st century.
c) People are pessimistic and cling to disastrous predictions for resources and environmental
degradation.
d) He made accurate predictions and nobody opposed it.
9. If many industries are expanding within a country, what is happening?

a) Nothing is changing.
b) The people’s welfare is decreasing.
c) The mortality level is increasing.
d) The economy is expanding and we have economic growth.
10. Some model the population growth rate by Pt = P0ert. Which of the following is true about this
equation?

a) The equation predicts that the population growth will slow down and become negative.
b) Reinforces Malthus’ idea that the population keeps growing, putting pressure on resources and
the environment.
c) The human race is doomed.
d) The equation predicts that humans will hit a maximum population limit.
11. Which country or continent has been devastated by HIV?

a) Asia.
b) Africa.
c) United States.
d) Australia.
12. What is the impact of high market prices on society?

a) Industries expand to the higher demand and price.

b) Firms want to supply more products to the market.
c) The high market price spurs technological progress.
d) All answers above are correct.
13. What of the following is not true about the Environmental Kuznet’s Cruve?

a) Pollution increases initially as a country develops its industry and then begins to decline after
reaching a certain level of economic progress.
b) That in the early stages of economic growth, degradation and pollution increase, but beyond
some level of income per capita, the trend reverses. High-income levels per capita leads to
environmental improvements.
c) That economic inequality decreases over time while a country is developing, then after a certain
average income is attained, inequality begins to increase.
d) That the relationship between per capita income and the use of natural resources and/or the
emission of wastes has an upside down U-shape.
14. Which explanation does not refer to Environmental Kuznets Curve:
a) A natural transition of economic development from agrarian economies, to heavy polluting
industries, and finally to cleaner service economies.
b) High-income countries export their pollution to less developed countries.
c) Environmental quality is a flow variable that improves over time.
d) High-income countries can afford to pay the higher pollution abatement costs.
15. One of the important implications of an Environmental Kuznets Curve (EKC) is that:

a) At low levels of income, pollution does not rise with flat growth because the pollution response is
weak.
b) Growth and development in a country does not necessarily lead to environmental degradation.
c) As income falls, the willingness to pay for environmental quality rises, and increasingly large
sacrifices in consumption are made to provide great environmental benefits.
d) Below a threshold level of pollution, the dirtiest technology will not be used.
16. There is empirical evidence that the amount of environmental regulation increases with the
level of income. Which of the following reason(s) are correct?

a) Pollution damages gets a higher priority after society has attained enough investments in health
and education.
b) High-income societies have more staff and funds to enforce compliance with environmental
regulations.
c) Higher income and education empower local communities to enforce tougher environmental
standards.
d) All of the above answers are true.
17. The Environmental Kuznet’s Curve can be interpreted as a transition from an agrarian sector to
urban industrialization. Along with this transition, we see a growth in income inequality as a low-
income agriculture society evolves into a high-income urban society. This will lead to:

a) Government creates social organizations to help low-income households.

b) Workers migrate from the agricultural industry to the industrial, urban jobs.
c) Society will focus less on public education.
d) Wide range of income level in the industrialized city, which further opens up inequality.
18. The Environmental Kuznet’s Curve upside down U-shape refers to:

a) An environmental indicator responding to climate seasons.

b) When environmental pollution is at its greatest level and society has attained a certain standard
of living from its economic system, society changes its focus from low-paying jobs to high-paying
jobs.
c) When environmental pollution is at its greatest level and society has attained a certain standard
of living from the industrial sector, society changes its focus from self-interest to social interest.
d) None of the answers is correct.
19. Which answer below is not a characteristic of the developing world?

a) They have high population growth rates.

b) They are moving from agrarian societies to industrialized societies, resulting in more pollution.
c) They are moving from industrialized societies to agrarian societies, resulting in less pollution.
d) Urbanization.
20. What are the potential problems in the developing world?

a) Urbanization.
b) Corruption and lack of democracy.
c) Lack of information/education.
d) All answers above are correct.
21. Why does the industry from developed countries relocate to the developing countries?

a) Developing countries have cheaper labor and lax regulations.

b) They want to help the developing countries create jobs.
c) They want to increase economic growth in developing countries.
d) They want to pay higher taxes.
22. Which country pollutes our atmosphere more than the other countries?

a) China.
b) Russia.
c) Japan.
d) Mongolia.
23. Why is urbanization increasing in the developing world?

a) Urban areas are cheaper to live in.

b) People want to be closer to friends and family.
c) Urban areas have stronger government regulations.
d) Urban areas tend to create the jobs.
24. What are the benefits if the developing countries grow into developed countries?

a) Their population growth rates slow down.

b) If they become high-income societies, then they may invest in green technologies.
c) If they become high-income societies, then they may replenish their renewable resources.
d) All answers are correct.
Answers:

1. b 2. a 3. d 4. a 5. c 6. b
7. c 8. c 9. d 10. b 11. b 12. d
13. c 14. c 15. b 16. d 17. b 18. c
19. c 20. d 21. a 22. a 23. d 24. d

Lecture 3 - Property Rights and Market Failure

1. Who coined the phrase "The Invisible Hand?"

a) Gordon Tullock.
b) John Maynard Keynes.
c) Joseph E. Stiglitz.
d) Adam Smith.
2. If government finds an endangered species living on your property, then:

a) Owner has severe restrictions on their property.

b) The government in effect takes the property, because it severely limited the owner’s choices.
c) Government does not compensate to protect the endangered species.
d) All answers are correct.
3. What is a market failure?

a) Something prevents the market to allocate resources efficiently.

b) Both consumers' and producer's surpluses are maximized.
c) Free market of individuals acting in their own self interest leads to a socially-desirable result.
d) None of the answers is correct.
4. What is a bundle of rights that describe an owner’s rights, privileges and limitations for use of a
resource?

a) Private goods.
b) Public goods.
c) Property rights.
d) State-property regimes.
5. What is a common-property regime?

a) Individuals hold entitlement.

b) Government owns and controls property.
c) No one owns or exercises control over the resource.
d) Property is jointly owned and managed by a specific group.
6. What does a market failure imply?

a) Wastefulness or economic inefficiency.

b) It lowers the costs involved in making a transaction.
c) Goods are always supplied by producer.
d) The consumers get the lowest prices and highest quantities from the market.
7. What kind of market failure is it, if a company producing medicines also pollutes the air?

a) Asymmetric Information.
b) Monopolies.
c) Negative Externality.
d) Open access property problem.
8. Which answer below is an example of a positive externality?

a) Public immunizations.
b) Increase of corporate taxes.
c) Issuing extra permits for pollution.
d) All answers above are correct.
9. Which answer below is not a market failure?

a) Asymmetric Information.
b) Monopolies.
c) Externalities.
d) Economies of scale.
10. What is it when fishermen catch too many fish, which causes the fish populations to decrease
to such a level that hurts future fish catching?

a) Asymmetric Information.
b) Monopolies.
c) Negative Externality.
d) Open access Property.
11. How can government correct the problem with open access property, like over fishing?

a) Allow one firm to control the resource.

b) Create permit system.
c) Prohibit access to the property.
d) All answers above are correct.
12. What is another name for an open access property?

a) Tragedy of the Commons.

b) Greenhouse effect.
c) Social marginal cost.
d) All answers above are correct.
13. Which one of the following is not a source of market failure?

a) Public goods.
b) Product is both rival and excludable.
c) Presence of externalities.
d) Asymmetric information.
14. Market failure can occur when:

a) Monopoly power exists in the market.

b) Properties rights are not well-defined.
c) Moral hazard and adverse selection exist
d) All of the above.
15. Which of the following is an example of a public good?

a) Having hot dogs at a picnic.

b) Whales swimming in the ocean.
c) National defense protecting a nation.
d) Apples on a tree in a public park.
16. Access to the broadcast signal from a radio station is a:

a) A private good, but the station itself is a public good.

b) A public good, but the station itself is a private good.
c) Both the radio station and broadcast signal are private goods.
d) Both the radio station and broadcast signal are public good.
17. Goods such as hamburgers and French fries are examples of:

a) Rival goods.
b) Nonrival goods.
c) Public goods.
d) Nonexclusive goods.
18. A situation in which a buyer and a seller possess different information about a transaction is
called:

a) Adverse selection.
b) Asymmetric information.
c) Market signaling.
d) Moral hazard.
19. What is the problem of prohibiting or outlawing pollution?

a) The prohibition lowers firms’ costs.

b) New firms enter the market to supply the outlawed products.
c) The prohibition creates job losses as industry shuts down.
d) Firms may purchase or sell permits in a market.
20. Which answer below causes an industry to relocate to another country and to export goods
back to the original country?

a) Pollution prohibition.
b) The public protests.
c) The original country offers tax breaks and subsidies.
d) Escape earthquakes and other natural disasters.
21. What is a leakage?

a) Government uses laws and regulations that dictate the standards and/or technology used to
reduce pollution.
b) Disputing parties work out a private agreement that is efficient for society.
c) The government uses price or quantity mechanisms to internalize the externalities.
d) The manufacturing firms flee to developing countries with weak environmental laws.
22. What is the problem of pollution lawsuits?

a) Courts are slow.

b) Litigation is costly.
c) Need to know both who causes the harm and what the damages are.
d) All answers are correct.
23. What allows a nation’s courts to intervene in a market to address externalities?

a) Protocols.
b) Lawsuits.
c) Command-and-control regulations.
d) Open access property.
24. Why do courts usually fail to come up with comprehensive plans?

a) Rules are developed from a case-to-case basis.

b) The judges and lawyers are too busy with other more serious court cases.
c) The judges and lawyers do not understand the economic problems of pollution.
d) The nation’s legislation branch of government does not give courts enough power.
25. When government uses laws and regulations that dictate the standards and technology used to
reduce pollution, which approach is the government using?

a) The Precautionary Principle.

b) The Coase Theorem.
c) Command-and-control regulations.
d) Pigovian Tax.
26. Why do politicians prefer command-and-control regulations (CAC)?

a) Many are trained as lawyers.

b) They create laws and regulations as their jobs.
c) The costs of CAC are not obvious.
d) All answers above are true.
27. If government regulates the amount of pollutant present in the surrounding (ambient)
environment, which type of Command-and-control regulations does the government use?

a) Ambient Standards.
b) Emission standards.
c) Technology standards.
d) Grandfathering of regulations.
28. Please define the Emission standards for command-and-control regulations:

a) Regulates the amount of pollutant present in the surrounding (ambient) environment.

b) Regulates the total level of emissions allowed in a locality.
c) Government uses price or quantity mechanisms to internalize the externalities.
d) Require polluters to use certain technologies, practices, or techniques.
29. Standards and regulations depend on the date the company starting using specific machines
and equipment, what does it mean?

a) Command and control regulations.

b) The Coase Theorem.
c) The Precautionary Principle.
d) The Grandfathering of regulations.
30. What kind of problems can occur with command and control regulations?

a) Freezes technology and limits firm’s flexibility.

b) Some victims aren't well defined.
c) Regulators must have sufficient knowledge to design the market.
d) Need to know both who causes the harm and what the damages are.
31. What is it called when government uses laws and regulations to dictate the standards and/or
technology to reduce pollution?

a) Pigouvian Taxes.
b) Command-and-control regulations (CAC).
c) Subsidy.
d) Lawsuits.
32. Which answer is NOT a command-and-control regulations standard?

a) Ambient Standards
b) Emission standards
c) Technology standards
d) Quality standard.
33. Which answer is a problem of command and control regulations?

a) They are not efficient.

b) They freeze technology and limit firm’s flexibility.
c) Although regulations are set by the federal level, the local governments enforce the regulations.
d) All answers above are correct.
34. What are ambient standards under command and control regulations?

a) The amount of pollutant present in the surrounding environment.

b) The level of emissions allowed to be discharged by a firm.
c) The use of certain technologies, practices, or techniques.
d) None of the answers above is correct.
35. Which answer does not apply for grandfathering of regulations?

a) Newer units face more restrictive regulations.

b) Could lead to more emissions in the short run.
c) Firms may increase investment in new technologies.
d) Older, incumbent firms have a cost advantage.
36. What are command-and-control regulations (CAC)?

a) Government’s use of price or quantity mechanisms to internalize the externalities.

b) Government’ placement of a tax directly on pollution.
c) Government implementation of a subsidy.
d) The government’s use of laws and regulations that dictate the standards and/or technology used
to reduce pollution.
37. Government ___________ to help a firm pay for a specific abatement technology.

a) imposes a tax on pollution.

b) grants a subsidy.
c) defines technology standards.
d) places a permit.
38. Subsidy is one of the ways to fix the negative externality caused by pollution. However there
are some problems with subsidies. Which answer cannot be considered a problem of
implementing a subsidy:

a) New firms may enter market, decreasing total pollution level.

b) The polluter receives money from the government, rather than paying.
c) Subsidies are often politically motivated, and can be difficult to remove when no longer needed.
d) Need to raise taxes to pay for subsidies.
39. A transferable discharge permit places the _________ limit of pollution or concentration level
for a(n) _________ is _________ to discharge into the __________.

a) maximum / firm / allowed / environment.

b) maximum / government / planning / industry.
c) minimum / firm / going / industry.
d) minimum / industry / allowed / environment.
40. How are permits allocated?

a) Through government auctions.

b) By grandfathering.
c) A hybrid of auctions and grandfathering.
d) All answers are correct.
41. Which statement is false for pollution a permit system?

a) Firms with high marginal abatement costs buy permits, and pollute more.
b) Firms with low marginal abatement costs sell permits, and pollute less.
c) The permit creates a market price of pollution.
d) Government sets the minimum pollution level.
42. Permits create a market price for pollution and therefore can be traded between firms. In order
for these permits to have low transaction costs, they must be:

a) Homogeneous, not divisible, and exchangeable.

b) Homogeneous, perfectly divisible, and exchangeable..
c) Homogeneous, non rival, and excludable.
d) Homogeneous, not divisible, and excludable.
Answers:

1. d 2. d 3. a 4. c 5. d 6. a
7. c 8. a 9. d 10. d 11. d 12. a
13. b 14. d 15. c 16. b 17. a 18. b
19. c 20. a 21. d 22. d 23. b 24. a
25. c 26. d 27. a 28. b 29. d 30. a
31. b 32. d 33. d 34. a 35. c 36. d
37. b 38. a 39. a 40. d 41. d 42. b

Lecture 4 - Pollution
1. Which of the ideas below indicates the level of uncertainty associated with pollution and its
damage to the environment from now and into the future?

a) The Porter Hypothesis.

b) The Precautionary Principle.
c) The Coase Theorem.
d) Global Warming Potential.
2. Government maximizes society's return to a public good when MB = MC. What should
government do if MB > MC?

a) Decrease production of a public good by one unit.

b) Increase production of one more unit of a public good.
c) Decrease production of a private good by one unit.
d) Increase production of one more unit of a public good.
3. What is uncertainty?

a) It is possible to describe the current state or predict future outcomes easily.

b) Uncertainty means something is measurable.
c) It is impossible to describe the current state or predict future outcomes.
d) Uncertainty presents a small problem for the Precautionary Principle
4. Which of the answers are true for a Marginal Cost function for a public project financed by
government?

a) Usually government assesses taxes on society to finance projects.

b) Supply for a public good has a positive slope.
c) Society has higher costs, as government supplies another unit of a public project.
d) All of the answers above are true.
5. How does the marginal abatement cost function change if a firm has a probability of getting
caught and government assesses a penalty?

a) Penalty for cheating * MC of compliance + probability caught.

b) Probability caught * MC of compliance + penalty for cheating.
c) Penalty for cheating * probability caught + MC of compliance.
d) None of the answers above is correct.
6. Why may uncertainty for environmental problems be highly non-linear?

a) The world is too complex and we do not know where the tipping points.
b) Damages may be barely noticeable for low levels, but become severe above some uncertain
threshold.
c) Humans should not go beyond the tipping points and exacerbate environmental damage.
d) All of the answers above are correct.
7. Why are local governments reluctant to increase environmental standards and regulations?

a) To attract industry and indirectly jobs and wealth.

b) To increase the health standards of their residents.
c) To make life easier for its citizens.
d) None of answers above is correct.
8. Why did the car industry in the United States push for federal standards in 1960?

a) The car industry in the U.S. cares about U.S. environment.

b) It was easier to have one set of regulations from federal government than 50 separate
regulations for each state.
c) Car industry wants to increase potential competition, thus more firms enter the market.
d) All answers above are correct.
9. Which state passed the toughest emission regulations for cars, even exceeding the federal
government’s standards?

a) California.
b) Ohio.
c) Illinois.
d) Texas.
10. Which theory or rule claims that environmental regulations spur innovation and new
technologies, thus increasing a firm’s competitiveness?

a) Coase theorem.
b) The Precautionary Principle.
c) Porter Hypothesis.
d) Hotelling’s Rule.
11. One can view environmental regulations as a benefit for …

a) society’s health.
b) the environment.
c) innovation of firms and companies.
d) All answers above are correct.
12. The EPA was going to shutdown the Robbins Company, because it discharged too much
polluted water. However, this caused the company’s engineers to develop new methods to purify
water, allowing the company to produce higher quality for a lower cost. Which idea explains this
behavior?

a) Porter Hypothesis.
b) Global warming potential.
c) Coase Theorem.
d) A Pigouvian Price.
13. Why did the pollution permits save an estimated $1 billion over command and control
regulation?

a) Flexible standards made using clean coal, rather than a scrubber, a viable option
b) Deregulation of railroads made it cheaper to transport low-sulfur coal across US
c) Technological innovation that cleaned a plant’s emissions.
d) All answers all are correct.
14. Which location in the atmosphere is ozone considered ”bad” and harmful to a public’s health?

a) Lower atmosphere.
b) Higher atmosphere.
c) Stratosphere.
d) Mesosphere.
15. Since ozone is highly reactive, which metal below will it oxidize?

a) Gold.
b) Copper.
c) Iridium.
d) Platinum.
16. Which governmental policies helped reduce ground-level ozone (O3)?

a) Introduction of low-emission cars and trucks.

b) Use “cleaner” fuels.
c) Improving vehicle inspection program.
d) All answers all are correct.
17. Emission of what compounds causes acid rain formation?

a) Carbonic acid (CO2) and nitrogen oxides (NOx).

b) Chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs).
c) Sulfuric acid (SO2) and nitrogen oxides (NOx).
d) Sulfuric acid (SO2) and ground level ozone (O3).
18. Before 1990, electric power plant emissions were regulated state and local governments. How
did these plants circumvent these regulations?

a) They constructed large smokestacks that carried pollution to the next jurisdiction.
b) They voluntarily created a market permit system to reduce their emissions.
c) They voluntarily installed scrubbers to clean the sulfur out of their emissions.
d) All answers above are correct.
19. What did Chernobyl, Three Mile Island, the Love Canal, and Bhopal, India all have in common?
a) They were all nuclear disasters.
b) The respective companies made significant environmental improvements.
c) They were environmental problems that were quickly fixed.
d) They qualify as technological disasters.
20. Why is the green movement and alternative energy becoming popular with large corporations
in developed countries?

a) The corporations want to appear socially responsible.

b) The corporations want to appease some investors who only invest with corporations that are
investing in green technologies.
c) The corporations want to preempt new, tougher environmental regulations.
d) All answers above are correct.
21. If production of a product causes pollution and the government does not intervene, what is the
social outcome of the producer’s decision?

a) The decision will result in social economic equity.

b) The decision will result in social economic efficiency.
c) The decision will result in social economic inefficiency.
d) The will result in the underproduction of the product from a society’s perspective.
22. In 1987, the United Nations convened a meeting in Canada to address the problem of ozone
depletion. What is the name of this agreement?

a) Chemical Responsibility Program.

b) Montreal Protocol.
c) Kyoto Protocol.
d) The European Union Emissions Trading Scheme (EU-ETS).
23. The Montreal Protocol was successful. Why are most international agreements not successful
in reducing pollution?

a) The agreement causes leakages.

b) The Montreal Protocol involved only six firms, while most pollution is caused by thousands or
millions of firms.
c) Members tend to cheat on their agreements.
d) All answers above are correct.
24. What were the results of the Montreal Protocol?

a) Greatly reduced production of CFCs.

b) Increased production of alternatives to CFCs.
c) The recycling of CFCs.
d) All of the answers above are correct.
25. Which country incurs the most environmental damage, if the product produces environmental
damage when used by the consumers and the product is imported from another country?
a) The exporting country experiences the environmental damage while the importing country does
not.
b) The importing country experiences the environmental damage while the exporting country does
not.
c) Both the importing and exporting countries suffer from environmental damage.
d) Neither the importing and exporting countries suffer from environmental damage.
26. Which country incurs the most environmental damage, if the product produces environmental
damage during production and the product is exported to another country?

a) The exporting country experiences the environmental damage while the importing country does
not.
b) The importing country experiences the environmental damage while the exporting country does
not.
c) Both the importing and exporting countries suffer from environmental damage.
d) Neither the importing and exporting countries suffer from environmental damage.
27.The Soviet Union and Eastern European countries imposed environmental taxes during the late
1970s and early 1980s, using complicated engineering formulas. Were these taxes successful?

a) Yes.
b) No.
c) At first the taxes were effective, then over time became less effective.
d) At first the taxes were not effective, then over time became more effective.
28. What is the influence of the free trade to the environmental damage?

a) It does not influence environment.

b) Free trade subsidizes environmental damage.
c) Free trade will bring green products.
d) Free trade may lead to more environmental problems.
29. Why do large corporations voluntarily reduce their pollution?

a) Some consumers are willing to pay more for ‘Green Products’.

b) “Green” investors are may prefer to invest with socially responsible firms.
c) Industry tries to act first before government passes tougher environmental laws.
d) All of the above.
30. Does the tax code exacerbate environmental damage? Which tax policy below would cause
more environmental damage?

a) Government taxes firms that produce greenhouse gases.

b) Government requires firms to produce more “Green Products.”
c) Government grants tax breaks to the oil and gas producers.
d) Government pays a subsidy for suppliers to use more biofuels.
31. What is point source pollution?

a) Pollution has an identifiable source.

b) Pollution is emitted from many sources and it is extremely difficult to identify and monitor.
c) Pollution emissions in one country or several countries affect other countries without pollution
problems.
d) Pollution that the environment can absorb.
32. What is nonpoint source pollution?

a) Pollution has an identifiable source.

b) Pollution is emitted from many sources and it is extremely difficult to identify and monitor.
c) Pollution that the environment can absorb.
d) Pollution emissions in one country or several countries affect other countries without pollution
problems.
33. What is a transboundary externality?

a) Pollution has an identifiable source.

b) Pollution emissions in one country or several countries affect other countries without pollution
problems.
c) Pollution which emitted from many sources and it is extremely difficult to identify and monitor.
d) Pollution which can take the form of chemical substances or energy, such as noise, heat, or
light.
34. Which of the following pollution is both a point source emission and transboundary pollution?

a) Polluted oceans and seas.

b) Global warming.
c) Acid rain.
d) All answers all are correct.
35. Which agreement have many countries signed that is supposed to fix greenhouse gas
emissions?

a) Montreal Protocol.
b) Kyoto Protocol.
c) Greenhouse Gas Protocol.
d) None of the answers are correct.
36. Which government policies can reduce pollution?

a) Command and control regulations.

b) Pigouvian taxes and subsidies.
c) Market permits and lawsuits.
d) All answers all are correct.
Answers:

1. b 2. b 3. c 4. d 5. c 6. d
7. a 8. b 9. a 10. c 11. d 12. a
13. d 14. a 15. b 16. d 17. c 18. a
19. d 20. d 21. c 22. b 23. d 24. d
25. b 26. a 27. b 28. d 29. d 30. c
31. a 32. b 33. b 34. c 35. b 36. d

Lecture 5 - Global Warming

1. What is the Greenhouse Effect?

a) Greenhouse gases (made by man) are accumulating in the atmosphere, trapping more solar
energy, and causing the world to become warmer through the greenhouse effect.
b) Gases accumulate in the atmosphere; they trap infrared radiation that heats up the earth.
c) One metric ton of carbon dioxide in the atmosphere traps a specific amount of the sun’s
radiation.
d) Global warming causes earth to be warmer but something changes that weakens the warming
effect.
2. What is the global warming?

a) Greenhouse gases (made by man) are accumulating in the atmosphere, trapping more solar
energy, and causing the world to become warmer through the greenhouse effect.
b) Gases accumulate in the atmosphere; they trap infrared radiation that heats up the earth.
c) One metric ton of carbon dioxide in the atmosphere traps a specific amount of the sun’s
radiation.
d) Global warming causes earth to be warmer but something changes that weakens the warming
effect.
3. What percentage of (dry) air is composed of carbon dioxide?

a) 20.95 %.
b) 78.08 %.
c) 0.93 %.
d) 0.93 %.
4. What is the Global Warming Potential (GWP)?

a) Greenhouse gases (made by man) are accumulating in the atmosphere, trapping more solar
energy, and causing the world to become warmer through the greenhouse effect.
b) Gases accumulate in the atmosphere; they trap infrared radiation that heats up the earth.
c) One metric ton of carbon dioxide in the atmosphere traps a specific amount of the sun’s
radiation.
d) Global warming causes earth to be warmer but something changes that weakens the warming
effect.
5. What percentage of greenhouse gases does methane gas contribute?

a) 6%
b) 15%
c) 18%.
d) 28%
6. Which gas below is a greenhouse gas, but does not have a Global Warming Potential?

a) Water vapor.
b) Carbon gas.
c) Nitrogen.
d) Oxygen.
7. What is a positive feedback loop?

a) Greenhouse gases (made by man) are accumulating in the atmosphere, trapping more solar
energy, and causing the world to become warmer through the greenhouse effect.
b) Gases accumulate in the atmosphere; they trap infrared radiation that heats up the earth.
c) One metric ton of carbon dioxide in the atmosphere traps a specific amount of the sun’s
radiation.
d) Global warming causes earth to be warmer but something changes that strengthens the
warming effect.
8. What are market incentives to lower greenhouse gas emissions?

a) Government prohibits the emissions of greenhouse gas.

b) Government imposes command and control regulations on greenhouse gas emissions.
c) Government uses price and quantity mechanisms to internalize the externalities.
d) None of the answers is correct.
9. Kyoto Protocol entered into full force on February 16, 2005. Which percentage is Japan
supposed to lower or increase its greenhouse gas emissions?

a) They are allowed to increase it by 10%

b) They are allowed to decrease it by 10%.
c) They are allowed to decrease it by 6%.
d) They are allowed to increase it by 6%.
10. What kind of positive feedback does water vapor have on the earth?

a. Water absorbs energy to become vapor.

b. Water vapor is a greenhouse gas that increases the greenhouse effect.
c. The warmer water releases its stored carbon dioxide, increasing greenhouse gases.
d. The water absorbs heat, thus slowing down global warming.
11. What kind of positive feedback do oceans have on the earth?

a) Oceans absorb heat, thus slowing down global warming.

b) Ocean absorbs energy to become water vapor, increasing greenhouse gases.
c) The warmer waters release their stored carbon dioxide, increasing greenhouse gases.
d) None of the answers above is correct.
12. What are the costs of climate change?

a) Health damage and deaths from heat waves and spread of tropical diseases.
b) Loss of agricultural output due to drought and changing climate conditions.
c) Rising sea level increases loss of land area, including beaches and wetlands
d) All answers above are correct.
13. What are the benefits of climate change?

a) Increased agricultural production in cold climates.

b) A hotter planet lowers heating costs.
c) Less deaths from exposure to the cold.
d) All answers above are correct.
14. What is mitigation of greenhouse gases?

a) Society reduces emissions of greenhouse gases.

b) Society uses more fossil fuels.
c) Society uses technologies to capture carbon dioxide and stores it.
d) Society uses technologies to absorb carbon dioxide from atmosphere and release it for energy.
15. What is the re-cycling of greenhouse gases?

a) Society reduces emissions of greenhouse gases.

b) Society uses more fossil fuels.
c) Society uses technologies to capture carbon dioxide and stores it.
d) Society uses technologies to absorb carbon dioxide from atmosphere and release it for energy.
16. Why policies that address global warming may not slow down climate change?
a) Climate change is a positive externality, and the public and governments want more of it.
b) All policies that reduce greenhouse gases would increase market prices and lower market
quantities.
c) Governments are oblivious to the problems of climate change.
d) Nations have no international agreements to reduce greenhouse gases and nobody wants to
start first.
17. Which country is the second largest polluter in the world?

a) USA.
b) Great Britain.
c) Canada.
d) India.
18. Which argument do developing countries use, so they should not have to limit their greenhouse
gas emissions?

a) It will help the developing country to improve and they do not want that.
b) Green technologies and alternative energy sources are not available to developing countries.
c) Developed countries refuse to help developing countries.
d) If the developing country limits their emissions, then they may limit their growth.
19. What are the problems of appealing to people’s civic duty for reducing greenhouse gases?

a) People lose sight of the big picture.

b) People want to help the environment, but refuse to pay the cost for doing so.
c) People tend to always buy at the lowest price and ignore the long-term impacts of climate
change.
d) All of the answers above are correct.
20. What are the benefits of lawsuits?

a) Countries have a variety of laws that allow people to sue that address and fix externalities.
b) Lawsuits are expensive and tend to be slow.
c) Courts develop rules a case-to-case basis.
d) Lawsuits encourage rent-seeking behavior, as lawyers sue to obtain millions in legal fees.
21. What are command-and-control regulations?

a) Regulations require market permits and place a market price on greenhouse gas emission.
b) Regulations place a tax on greenhouse gas emissions.
c) Laws and regulations dictate the standards and technology used to reduce greenhouse gases.
d) Laws allowing the public to sue corporations to reduce greenhouse gas emissions.
22. When was the Kyoto Protocol adopted?
a) On December 11, 1997 in Kyoto, Japan.
b) On December11, 1997 in Quebec, Canada.
c) On December 11, 1998 in Kyoto, Japan.
d) On November 11, 1998 in Moscow, Russia
23. How many countries signed the Kyoto Protocol?

a) 200
b) 183
c) 111
d) 178
24. Which country signed the Kyoto Protocol, but did not ratify this agreement?

a) United Kingdom
b) China
c) Korea
d) United States.
25. European countries started their European Union Emissions Trading Scheme. What happens if
a company exceeds its greenhouse gas emissions limit?

a) They have 30 days to bring their emissions into compliance.

b) They can buy carbon credits from the market.
c) They have to sell carbon credits to the market.
d) All answers above are correct.
26. What is the main idea of Kyoto Protocol?

a) To stabilize greenhouse gas buildup in the atmosphere.

b) Allow sellers to organize together and make joint decisions.
c) To help find substitutes for gasoline.
d) To help find substitutes for diesel fuel.
27. The European Union Emissions Trading Scheme does not appear to be effective in reducing
greenhouse gases. Why is this occurring?

a) European countries strictly monitor their industries, causing many industries to bankrupt.
b) European countries created too few carbon permits.
c) European countries created too many carbon permits.
d) None of the answers is correct.
Answers:

1. b 2. a 3. d 4. c 5. c 6. a
7. a 8. c 9. c 10. b 11. c 12. d
13. d 14. a 15. d 16. b 17. a 18. d
19. d 20. a 21. c 22. a 23. b 24. d
25. b 26. a 27. c