Economics of Natural Resources Study Guide Questions
Course Introduction
Economics of Natural Resources explores the allocation, utilization, and conservation of natural resources such as minerals, water, energy, fisheries, and forests from an economic perspective. The course examines market and government mechanisms for managing resources, focusing on concepts like resource scarcity, property rights, externalities, and sustainable development. Students will analyze methods for valuing natural resources, optimal extraction paths, and the impact of resource use on the environment. Case studies and real-world examples are used to illustrate policy instruments and regulations designed to promote efficiency and long-term welfare in resource management.
Recommended Textbook
Environmental Economics and Management Theory Policy and Applications 6th Edition by Scott
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Chapter 1: The Role of Economics in Environmental Management
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Sample Questions
Q1) According to proponents of an environmentally-adjusted measure of a nation's macroeconomic performance
A) GDP fails to properly capture the effects of environmental pollution
B) GDP appropriately accounts for natural resource depletion
C) the international community does not support environmental accounting
D) the guidelines outlined in the SEEA of 2003 are meaningless
Answer: A
Q2) Natural pollutants are those linked to human activity.
A)True
B)False
Answer: False
Q3) Within the Circular Flow Model, households are assumed to be the owners of all factors of production, including the natural resources.
A)True
B)False
Answer: True
Q4) Nature's capacity to convert matter and energy is limitless.
A)True
B)False
Answer: False
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Chapter 2: Modeling the Market Process: a Review of the Basics
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Q1) Allocative efficiency in a market means that resources are appropriated such that
A) the additional social benefits outweigh the additional social costs
B) the additional social benefits outweigh the additional private benefits
C) the marginal social benefits are equal to the marginal social costs
D) the marginal social benefits are greater than the marginal social costs
Answer: C
Q2) If a firm maximizes output from a stock of available resources, it must be achieving allocative efficiency.
A)True
B)False
Answer: False
Q3) Producers' decisions are modeled through the demand function, and consumers' decisions are captured by the supply function.
A)True
B)False
Answer: False
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Chapter 3: Modeling Market Failure
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Q1) A public good is characterized as possessing either nonrivalry in consumption or nonexcludable benefits.
A)True
B)False
Answer: False
Q2) The underlying assumptions of the Coase Theorem are that transactions are costless and that damages are accessible and can be measured.
A)True
B)False
Answer: True
Q3) 2 Which area represents the loss to the petroleum refineries as a result of the restoration of efficiency?
Answer: The loss to petroleum refiners as a result of the restoration of efficiency is represented by Area C.
Q4) Nonexcludability refers to the possibility that the benefits of consumption can be shared.
A)True
B)False Answer: False
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Chapter 4: Conventional Solutions to Environmental
Problems: Command-And-Control Approach
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Q1) An ambient standard
A) specifies a pollution limit and lets polluters choose the technology to achieve that limit
B) designates the equipment or control method that must be used to abate pollution
C) assures that the least-cost abatement approach will be used by all polluters
D) none of the above
Q2) The marginal cost of enforcement (MCE) must be added vertically to the MAC<sub>mkt</sub> to derive the marginal social cost (MSC) of abatement function.
A)True
B)False
Q3) Based on this model, if the government uses a uniform standard
A) the total abatement cost for firm X is $24
B) the total abatement cost for firm Y is $12
C) the combined total abatement cost for both firms is $1,200
D) the combined total abatement cost for both firms is $300
Q4) Standards are the fundamental basis of most environmental policies.
A)True
B)False
Page 6
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Chapter 5: Economic Solutions to Environmental Problems: the Market Approach
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Q1) A subsidy
A) used in an abatement equipment market can achieve an efficient solution if the subsidy is set equal to the MEB at Q<sub>E</sub>
B) on pollution reduction activity encourages firms to reduce pollution below a predetermined standard
C) on abatement equipment can create bias by changing the relative prices of various abatement technologies
D) all of the above
E) (a) and (b) only
Q2) Real-world applications of deposit-refund systems include
A) programs implemented through state bottle bills
B) initiatives aimed at proper disposal of lead-acid batteries
C) programs that create incentives to return scrapped vehicles
D) all of the above
E) none of the above
Q3) Of all the market-based policy instruments used to combat environmental damage, the pollution charge is the most commonly used worldwide.
A)True
B)False
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Chapter 6: Environmental Risk Analysis
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Q1) Risk that is deliberately assumed is considered involuntary risk.
A)True
B)False
Q2) According to the text application, the IPCC estimates that
A) Africa is the only continent vulnerable to climate change
B) ecological risk to North America will vary within the region
C) Europe should experience shorter growing seasons
D) Latin American should experience higher crop yields
E) all of the above
Q3) Which of the following are examples of involuntary risks?
A) skydiving
B) mountain climbing
C) being exposed to secondhand smoke
D) (b) and (c) only
E) none of the above
Q4) According to the EPA model of human health risk assessment, the risk assessment phase is comprised of five distinct steps.
A)True
B)False
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Chapter 7: Assessing Benefits for Environmental Decision Making
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Q1) Incremental benefits refer to the
A) accumulated gains linked to environmental policy
B) total social benefits of avoiding ecological damage
C) reduction in environmental damages associated with an environmental policy initiative
D) none of the above
Q2) The benefit estimation method that uses surveys about hypothetical market conditions is
A) the averting expenditure method
B) the contingent valuation method
C) the travel cost approach
D) the political referendum approach
Q3) The number of pre- and post-policy visitors, V<sub>1</sub> and V<sub>2</sub>, (in thousands) is ____ and _____, respectively.
A) 2,100; 3000
B) 44,100; 90,000
C) 61.6; 79.6
D) none of the above
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Chapter 8: Assessing Costs for Environmental Decision Making
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Q1) Suppose the marginal social cost (MSC) of abatement for particulate matter (PM) is MSC = 8 + 0.5A, where A is percent of PM removed, and MSC is in millions of dollars. Find the change in total social costs (TSC) of abatement if the abatement level increases from 12 percent to 20 percent as a result of new policy.
Q2) If MSC = 20 + 0.75A, where MSC is in millions of dollars, and A is the percentage of mercury emissions abatement, then
A) the total social costs of abatement equal $184 million when A is 8 percent
B) the TSC at an abatement level of 10 percent is $27.5 million
C) a 40 percent abatement level is associated with MSC of $30 million and TSC of 20 million
D) TSC cannot be determined at any abatement level
Q3) The accounting equivalent of variable costs is capital costs.
A)True
B)False
Q4) The MCE function represents the
A) marginal cost of enforcement incurred by the government
B) marginal cost of the externality linked to environmental pollution
C) market cost of a given environmental policy initiative
D) extra cost of the engineering approach
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Chapter 9: Benefit-Cost Analysis in Environmental Decision Making
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Q1) To achieve cost-effectiveness among options that satisfy the benefit objective
A) both PVB and PVC must be minimized
B) PVB must be minimized and PVC must be maximized
C) PVC must be minimized
D) none of the above
Q2) All of the following are true EXCEPT
A) President Reagan was the first U.S. president to call for the use of economic criteria when evaluating policy
B) President Reagan's Executive Order 12291 required the use of a Regulatory Impact Analysis (RIA) when major regulations were being considered
C) During his presidency, Clinton did not issue any executive order to continue Reagan's commitment to using economic criteria in policy evaluation
D) President Obama issued an executive order to support and expand upon President Clinton's executive order requiring benefits to justify the costs of a significant regulation
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Chapter 10: Defining Air Quality: the Standard-Setting Process
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Sample Questions
Q1) Over 180 hazardous air pollutants are controlled by the Clean Air Act.
A)True
B)False
Q2) Which of the following statements is INCORRECT?
A) Before the 1950s, all air quality laws in the United States had been enacted at the state and local levels of government
B) The first state-level law to control motor vehicle emissions was passed in Massachusetts
C) The Clear Skies Act was put forth under the administration of George W. Bush
D) The Clean Air Act Amendments of 1990 include some market-based policies
Q3) The first federal air pollution legislation was the Clean Air Act of 1963.
A)True
B)False
Q4) PSD areas
A) must meet the same standards as do nonattainment areas
B) face standards that are necessarily set at an efficient level
C) are regions that meet or exceed national ambient air quality standards
D) are likely associated with higher MSC than that of nonattainment areas
Page 12
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Chapter 11: Improving Air Quality: Controlling Mobile
Sources
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Sample Questions
Q1) Photochemical smog is caused by a chemical reaction involving criteria pollutants in the presence of sunlight.
A)True
B)False
Q2) Available market incentives for clean fuel vehicles
A) include carbon allowances for purchasers of hybrid vehicles
B) no longer exist in the United States
C) are tax credits for purchasers of plug-in hybrids d are limited to international buyers of electric cars
Q3) Mobile source standards in the U.S. are solely benefit-based, which means they are set
A) to achieve allocative efficiency
B) to maximize total social benefits
C) at the point where MSB is maximized
D) at the abatement level where MSC is zero
E) none of the above
Q4) The use of uniform emissions standards on mobile sources generates a cost-effective solution.
A)True
B)False
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Chapter 12: Improving Air Quality: Controlling Stationary
Sources
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Q1) The GHG permitting requirements
A) are applicable to both mobile and stationary sources
B) will not be in force until 2016
C) are part of the New Source Review requirements
D) all of the above
Q2) Which of the following are among the effects of exposure to SO<sub>2</sub> and NO<sub>X</sub>?
A) visibility impairment
B) acidification of surface waters
C) forest damage
D) all of the above
Q3) Of the two major pollutants responsible for acid rain, sulfur dioxide (SO<sub>2</sub>) is the more significant.
A)True
B)False
Q4) Two new NO<sub>X</sub> cap-and-trade programs were launched under the Clean Air Interstate Rule (CAIR).
A)True
B)False
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Chapter 13: Global Air Quality: Policies for Ozone Depletion and Climate Change
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Q1) In the United States, there is a federally enforced greenhouse gas (GHG) allowance trading program.
A)True
B)False
Q2) During the Bush administration, the United States ratified the Kyoto Protocol.
A)True
B)False
Q3) At the sixteenth Conference of the Parties (COP16) in Cancún,
A) participating nations signed binding commitments to further reduce GHGs
B) the countries in attendance could not reach agreement on any issue
C) the parties agreed to extend the Kyoto Protocol for 5 more years
D) participants agreed to GHG emissions reductions to keep the rise in average global temperature to less than 2 degrees Celsius
Q4) Proposals have been submitted to phase down HFCs, a CFC substitute, because they are greenhouse gases contributing to climate change.
A)True
B)False
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Chapter 14: Defining Water Quality: the Standard-Setting Process
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Q1) Which of the following statements is INCORRECT?
A) The Oil Pollution Act (OPA) was enacted in response to the BP Deepwater Horizon spill.
B) The Ocean Dumping Act ends dumping of sewage sludge and industrial waste.
C) The Great Lakes Legacy Act provides federal funding to address contamination of the Great Lakes
D) Included in the Water Quality Act of 1987 were requirements for states to establish nonpoint source pollution program
Q2) Use designation for a water body
A) gives the biological and chemical water attributes to meet water quality standards
B) is one of two components of receiving water quality standards
C) identifies the intended purposes of a water body
D) all of the above
E) (b) and (c) only
Q3) All of the following are point sources, EXCEPT
A) publicly-owned treatment works (POTW)
B) factory smokestack
C) recreational motor boat
D) urban runoff
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Chapter 15: Improving Water Quality: Controlling Point and Nonpoint
Sources
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Q1) According to available data, most water bodies in the United States have met the zero discharge goal.
A)True
B)False
Q2) Because the effluent limitations are set uniformly, achieving a cost-effective solution is unlikely.
A)True
B)False
Q3) Ultimately, federal subsidies of POTW construction accomplished little in terms of improving waste treatment for the U.S. population.
A)True
B)False
Q4) An effluent fee
A) is a dollar value added to the price of a pollution-generating product
B) is a command-and-control instrument
C) can be based upon the degree of harm linked to the contaminant being released
D) cannot be linked to the quantity of pollution released
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Chapter 16: Protecting Safe Drinking Water
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Q1) Each National Primary Drinking Water Regulation (NPDWR) includes a Maximum Contaminant Level Goal (MCLG), a Maximum Contaminant Level (MCL), and Best Available Technology (BAT).
A)True
B)False
Q2) Among the criteria used for identifying priority contaminants is that
A) the pollutant must occur in a private water system
B) the contaminant might have a negative effect on the ecology
C) the pollutant must be a microorganism
D) the contaminant may have an adverse effect on human health
E) none of the above
Q3) An established reference dose (RfD) is defined as the amount of a contaminant to which people can be exposed over a 24-hour period without harm.
A)True
B)False
Q4) Under U.S. law, National Primary Drinking Water Regulations (NPDWRs) have been announced for hundreds of chemicals, microorganisms, and radionuclides.
A)True
B)False
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Chapter 17: Managing Hazardous Solid Waste and Waste Sites
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Q1) The identification of hazardous wastes under the Resource Conservation and Recovery Act (RCRA)
A) uses benefit-cost analysis for characteristic wastes
B) uses a uniform approach to implement the identification criteria
C) employs an index based on toxicity
D) is based on risk-benefit analysis
Q2) Standards on treatment, storage, and disposal facilities (TSDFs) are set to achieve allocative efficiency.
A)True
B)False
Q3) A type of hazardous substance is
A) an acid or base
B) a heavy metal like copper or mercury
C) synthetic organic chemicals, such as pesticides
D) all of the above
E) none of the above
Q4) Types of hazardous substances include heavy metals, acids, and solvents.
A)True
B)False
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Chapter 18: Managing Municipal Solid Waste
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Sample Questions
Q1) The dollar value of a retail (or front-end) disposal charge needed to restore efficiency to this market would be
A) $4
B) $2
C) $6
D) $20
Q2) Based on this model, it is apparent that there is a
A) negative production externality
B) positive external benefit
C) consumption externality measured as MEB = - 0.1Q
D) negatively sloped MEC function
Q3) Municipal solid waste (MSW)
A) refers to the collection of hazardous and toxic wastes disposed of in local communities
B) can cause problems if improperly managed
C) poses no health or ecological risks to society
D) is a problem only in developing countries
Q4) A back-end charge is implemented as a price per household.
A)True
B)False
Page 20
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Chapter 19: Controlling Pesticides and Toxic Chemicals
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Q1) According to an EPA task force that examined risk assessment,
A) expert risk rankings are in line with those of the general public
B) only expert risk rankings are relevant
C) the federal government's environmental priorities are consistent with expert risk ranking
D) none of the above
Q2) Registration of new pesticides and reregistration of those already on the market are the chief instruments of FIFRA.
A)True
B)False
Q3) The incremental benefits of pesticide use can be modeled as the change in consumer and producer surplus associated with an increase in the demand for an agricultural crop.
A)True
B)False
Q4) If a unit tax is used to internalize the consumption externality of chemical use, it achieves efficiency if it is set equal to the MSB at the efficient output level.
A)True
B)False
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Chapter 20: Sustainable Development: International Environmental Agreements
and International Trade
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Q1) Chlorofluorocarbons (CFCs) are a group of chemicals believed to contribute to depletion of the ozone layer.
A)True
B)False
Q2) The U.S.-Canada Air Quality Agreement represents the efforts of the two nations to combat climate change.
A)True
B)False
Q3) The international trade agreement that was executed in the 1940s was
A) the NAFTA
B) the U.S.-Mexico Border 2012 Agreement
C) the London Convention
D) the 1996 Protocol
E) the GATT
Q4) The United States ratified the Kyoto Protocol in 2001 during the Bush administration.
A)True
B)False
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Chapter 21: Sustainable Approaches: Industrial Ecology and
Pollution Prevention
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Q1) Environmental technology transfers can involve dark green or light green technologies.
A)True
B)False
Q2) The "cradle to cradle" approach to materials and waste management
A) involves a linear flow of materials and wastes
B) involves a cyclical flow of materials and wastes
C) acknowledges design for recycling in the waste management process
D) none of the above
E) (b) and (c) only
Q3) An important motivation of environmental accounting is to help firms make accurate costs assessments about pollution prevention.
A)True
B)False
Q4) In the context of technology transfer, light green technologies refer to A) innovations that directly impact the environment
B) technologies that indirectly affect the environment
C) toxic chemical use substitution
D) none of the above
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