Environmental Economics Exam Review
Course Introduction
Environmental Economics examines how economic principles and tools can be applied to address environmental challenges such as pollution, climate change, resource depletion, and ecosystem degradation. This course explores the relationship between economic activity and the environment, evaluating the efficacy of various policy instruments like taxes, subsidies, regulation, and market-based approaches (such as tradable permits) to mitigate environmental problems. Students will analyze concepts like externalities, public goods, and valuation of non-market resources, and learn to assess the costs and benefits of environmental policies to guide decision-making for sustainable development.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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558 Verified Questions
558 Flashcards
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Page 2
Chapter 1: Economic Models
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39 Verified Questions
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Sample Questions
Q1) Given \(Y = f ( X , Z )\) which of the following are necessarily true?
A)Y is a linear function.
B)X,Z are dependent variables.
C)A contour line of this function would keep Y constant.
D)An increase in X would increase Y.
Answer: C
Q2) For the equation \(Y = \sqrt { X \cdot Z }\) the point \(X = 20\) , \(z = 5\) .
A) \(Y = 10\) yields a value of .
B)lies below the contour line that includes the point \(X = 15\) , \(z = 7\) .
C)lies on the same contour line as the point \(X = 12\) , .
D)Both a and b
Answer: D
Q3) A major problem that may occur with models that predict the values of economic variables in the future is that
A)researchers are pessimistic about the future.
B)the model may fail to acknowledge that economic actors will change their behavior in response to changing situations.
C)the model may make predictions that conflict with widely held opinions.
D)no one cares about these predictions.
Answer: B
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Chapter 2: Utility and Choice
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Sample Questions
Q1) "If an individual is to maximize the utility received from consumption,he or she should spend all available income...." This statement assumes.
A) that saving is impossible.
B) that the individual is not satiated in all goods.
C) that no goods are "inferior."
D)Both a and b.
Answer: D
Q2) The point of tangency between a consumer's budget constraint and his or her indifference curve represents
A)complete satisfaction for the consumer.
B)the equivalence of prices the consumer pays.
C)constrained utility maximization for the consumer.
D)the least he or she can spend.
Answer: C
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Chapter 3: Demand Curves
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Sample Questions
Q1) A decrease in demand is represented by
A)a shift outward of the entire demand curve.
B)a shift inward of the entire demand curve.
C)a movement along the demand curve in a southeasterly direction.
D)a movement along the demand curve in a northwesterly direction.
Answer: B
Q2) With only two goods,if the income effect is in the opposite direction as the substitution effect but the substitution effect dominates then the good is A)normal
B)inferior but not Giffen
C)Giffen
D)There is not enough information to answer.
Answer: B
Q3) Two goods,X and Y,are called complements if
A)an increase in PX causes more Y to be bought.
B)an increase in PX causes less Y to be bought.
C)an increase in PY causes less Y to be bought.
D)an increase in income causes more of both X and Y to be bought.
Answer: B
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Page 5
Chapter 4: Uncertainty
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Sample Questions
Q1) A gamble can be described as "fair" if the expected value of the gamble (including any costs of play)is
A)positive.
B)zero.
C)negative. D)one.
Q2) Risk aversion is best explained by A)timidity.
B)increasing marginal utility of income.
C)constant marginal utility of income.
D)decreasing marginal utility of income.
Q3) Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 90%.What must the jackpot be for this to be a fair bet?
A)10
B)100
C)1,000
D)10,000
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Chapter 5: Game Theory
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Sample Questions
Q1) Best-response functions
A)can only be used to analyze games with continuous actions.
B)are always downward sloping.
C)always intersect at Nash equilibria.
D)never intersect.
Q2) A lake supports a delicious variety of fish. The land around the lake is owned by two fisherman,so by state law both are free to fish as much as they like. Let FA and FB be the number of fish each catches,respectively. Suppose the price of fish is 100 - FA - FB. Given this demand curve,it turns out that marginal revenue is 100 - 2FA - FB for fisherman A and 100 - FA - 2FB for fisherman B. What is the total number of fish by both in the Nash equilibrium?
A)30
B)45
C)60
D)90
Q3) The game of Matching Pennies
A)has no Nash equilibrium.
B)has a pure-strategy Nash equilibrium.
C)has a mixed strategy Nash equilibrium.
D)has multiple Nash equilibria.
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Chapter 6: Production
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Sample Questions
Q1) If production is given by Q = KL,doubling both inputs
A)more than doubles output.
B)exactly doubles output.
C)increases output but does not double it.
D)leaves output unchanged.
Q2) The marginal physical product of labor is
A)the slope of the total output curve at the relevant point.
B)the negative of the slope of the total output curve at the relevant point.
C)the slope of the line connecting the origin with the relevant point on the total output curve.
D)the negative of the slope of the line connecting the origin with the relevant point on the total output curve.
Q3) If production is given by Q = K<sup>s</sup>L<sup>b</sup>,(a + b < 1)doubling both inputs
A)more than doubles output.
B)exactly doubles output.
C)increases output but does not double it.
D)leaves output unchanged.
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8
Chapter 7: Costs
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Sample Questions
Q1) Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.If the price of corn feed is $2 and the price of soybean feed is $5,what is the cost-minimizing feed combination producing P = 100?
A)C = 50
B)S = 20
C)C = 25,S = 10
D)All points on the P = 100 isoquant,including those listed in a-c would cost the same.
Q2) In the long run
A)all inputs are fixed.
B)all inputs are variable.
C)some inputs are fixed.
D)production levels never change.
Q3) As long as marginal cost is below average cost,average cost will be A)falling
B)rising.
C)constant.
D)changing in a direction that cannot be determined without more information
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) An unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. If the company has zero marginal costs,its profit-maximizing price is
A)0
B)1
C)2.5
D)5
Q2) Suppose a farmer is a price taker in soybeans with cost functions given by ?
TC = .1q<sup>2</sup> + 2q + 30
MC = .2q + 2
Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case,its new total cost function is
A)still TC = .1q<sup>2</sup> + 2
B)TC = .1q<sup>2</sup> + .2q + 80
C)TC = .1q<sup>2</sup> + 2q + 50
D)TC = 50
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) In the long run,the greater burden of a specific tax will usually be absorbed by A)consumers.
B)the party consumers or producers with the more elastic demand/supply curve.
C)the party with the least elastic demand/supply curve.
D)shareholders and employees of the firm in the form of reduced dividends and wages.
Q2) Per-unit transaction costs
A)may cause the demand and supply curves to shift either inward or outward depending on the value obtained from transaction agents.
B)refer only to the commission paid to a third party for each transaction made.
C)are absorbed by the party seeking the transaction.
D)have the same effect on behavior as do lump-sum transaction costs; the difference in terminology is purely definitional.
Q3) If a 1 percent increase in price leads to a .7 percent increase in quantity supplied in the short run,the short-run supply curve is A)elastic.
B)inelastic.
C)unit elastic.
D)perfectly inelastic.
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11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) The rate of product transformation refers to
A)how a consumer can trade one good for another while still maximizing his or her utility.
B)how a firm can substitute one input for another and still maintain the same production level.
C)how production of one good can be substituted for another while still using a fixed supply of inputs efficiently.
D)how quickly a firm can produce a final good while starting with only natural resources.
Q2) Each of the following factors might interfere with the efficiency of perfect competition except:
A)increasing returns to scale.
B)imperfect price information.
C)externalities.
D)diminishing returns to scale.
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Chapter 11: Monopoly
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Sample Questions
Q1) A monopolist has total cost TC = Q<sup>2</sup> + 10Q + 100 and marginal cost MC = 2Q + 10. It faces demand Q = 130- P (so its marginal revenue is MR = 130 - 2Q). Its profit-maximizing output
A)30
B)25
C)20
D)10
Q2) A monopolist has total cost TC = .1Q<sup>2</sup> - 2Q + 100 and marginal cost MC = .2Q - 2. Market demand is Q = 86 - P,implying that the firm's marginal revenue is MR = 86 - 2Q. Its profit-maximizing output is
A)92
B)46
C)40
D)20
Q3) All of the following might explain a firm offering quantity discounts except:
A)lower costs of handling large orders.
B)an inelastic demand for the good.
C)monopoly power in this market.
D)existence of some high and some low demand consumers.
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Page 13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?
A)it would increase its output,more so if it could deter the other from entering the market at all.
B)it would increase its output,but would moderate this increase if it were concerned about entry deterrence.
C)it would decrease its output if it couldn't deter entry and increase it otherwise. D)it would decrease its output whether or not it wanted to deter entry.
Q2) Consider the same market for nonalcoholic beer as in the previous question. How many "units" of beer will Cudweiser produce?
A)667
B)1,667
C)2,333
D)3,000
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) Suppose the market for labor is perfectly competitive and the demand for labor is \(L = 100 - 10 w\) and market supply is \(i L = - 20 + 10 \mathrm { ws }\) .If a minimum wage is imposed at w = 8,the gain to workers who keep their jobs,(in producer surplus terms)will be
A)10
B)20
C)30
D)40
Q2) If the wage rate rises,labor's share in the total costs of a production process
A)will increase.
B)will decrease.
C)may increase or decrease depending on the elasticity of demand for the product.
D)may increase or decrease depending on the ease of substitution of other inputs for labor.
Q3) If a firm is a monopsonistic hirer of labor,
A)its marginal expense for labor is greater than the market wage.
B)its marginal expense for labor is equal to the market wage.
C)its marginal expense for labor is less than the market wage.
D)it is a price taker in the labor market.
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Page 15
Chapter 14: Capital and Time
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Sample Questions
Q1) Accelerated depreciation laws may increase firms' investment in equipment because A)machines will wear out more rapidly.
B)profits will be increased.
C)the rental rate on capital will be lowered.
D)the price of machines will fall.
Q2) Suppose Johnny Stroller sells 12,25,and 75 year-old scotch in under black,red,and blue labels.Suppose the storage costs are zero and the initial production costs are the same.What is the implied (approximate)interest rate if black sells for $18,red for $34 and blue for $388.
A)2
B)5
C)8
D)10
Q3) The present value of $1 payable in two years is
A)$1.
B)$1/(1 + 2r).
C)$1/(1 - 2r).
D)$1/(1 + r)2.
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) The "lemons model" predicts quality deterioration in the used-car market because
A)used cars require increasing maintenance.
B)suppliers and demanders have different information about cars' quality.
C)used cars are generally of a lower quality than new cars.
D)people will usually buy new cars if they are available.
Q2) Suppose that your personal valuation for a painting is $200. Which auction format would induce you to bid more?
A)First price.
B)Second price.
C)You would bid the same in any format.
D)Depends on the environment.
Q3) How do participants in an auction respond to the problem of the "winner's curse"?
A)They bid more aggressively to win the auction and avoid the "curse".
B)They exit the auction because winning can only be a bad sign of the object's worth.
C)All bid less aggressively,so that the winner ends up not regretting having won.
D)The winner regrets having won the auction.
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17
Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) If bargaining is costless,the assignment of property rights for an externality
A)has no impact on the possibility of an efficient outcome and no distributional impact.
B)has no impact on the possibility of an efficient outcome but does have a distributional impact.
C)does have an impact on the possibility of an efficient outcome but has no distributional impact.
D)does have an impact on the possibility of an efficient outcome and does have a distributional impact.
Q2) The "free-rider problem" of public goods refers to
A)individuals' refusal to pay taxes.
B)individuals' attempts to hide their preferences for collective goods and to avoid paying for them.
C)individuals' overuse of collective goods.
D)the inelasticity of individuals' demands for public goods.
Q3) Left to their own,private markets tend to
A)under-allocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)over-allocate resources to public goods.
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Chapter 17: Behavioral Economics
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Sample Questions
Q1) Consider a version of the ultimatum game in which player A makes an integer offer {1,2 ,9} to player B. If B accepts,he or she gets that amount of money and A gets to keep the remainder of $10. If B rejects,both get nothing. Which of the following is an offer that arises in a subgame-perfect equilibrium assuming players only care about monetary payoffs?
A)1.
B)2.
C)4.
D)5.
Q2) Consider the same ultimatum game as in the previous questions but consider yet new preferences reflecting envy. In particular,now assume players get 1 util per dollar earned. That is all for the player who earns at least as much as the other. The player who earns strictly less than the other loses 1 util for each dollar difference. Which of the following is an offer that arises in a subgame-perfect equilibrium with these preferences?
A)1.
B)2.
C)4.
D)5.
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Page 19