Environmental Economics
Final Exam Questions
Course Introduction
Environmental Economics explores the intersection of economic theory and environmental issues, examining how economic principles can be applied to address environmental challenges. The course covers topics such as market failures, externalities, and the valuation of natural resources, alongside policy instruments like taxes, tradable permits, and regulations designed to correct environmental problems.
Students also analyze the cost-benefit analysis of environmental policies, the economics of renewable and nonrenewable resource use, and the role of economic incentives in promoting sustainability. By integrating economic reasoning with environmental objectives, the course equips students to critically assess and design effective solutions for achieving sustainable development.
Recommended Textbook
Microeconomics 7th Edition by Jeffrey M. Perloff
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20 Chapters
2248 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Microeconomic models are used to
A) make predictions.
B) explain real-life phenomena.
C) evaluate policy alternatives.
D) All of the above.
Answer: D
Q2) Legislators argue that a minimum wage law is instituted to help poor people.Economists can attack the minimum wage law on two fronts.First,some argue that government should not help the poor.Second,some argue that minimum wage laws actually hurt the poor because it creates unemployment.Which argument is normative and which is positive?
Answer: An opinion about the role of government is a normative statement.An observation about the impact of a law is a positive statement.
Q3) Most microeconomic models assume that decision makers wish to A) make themselves as well off as possible.
B) act selfishly.
C) make others as well off as possible.
D) None of the above.
Answer: A
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Page 3
Chapter 2: Supply and Demand
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Sample Questions
Q1) The above figure shows four different markets with changes in either the supply curve or the demand curve.Which graph best illustrates the market for coffee after severe weather destroys a large portion of the coffee crop?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: C
Q2) A drought in the Midwest will raise the price of wheat because of a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) leftward shift in the demand curve.
D) rightward shift in the demand curve.
Answer: A
Q3) Technological innovation in the production of computers has led to
A) a decrease in the quantity demanded for computers.
B) a rightward shift of the supply curve for computers.
C) a decrease in the quantity supplied of computers.
D) None of the above.
Answer: B
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Chapter 3: Applying the Supply and Demand Model
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Sample Questions
Q1) The rising price of oil has made it feasible to extract oil out of oily sand in Canada.Concerning the oil market this is an example of
A) a higher price elasticity of supply in the long run.
B) a higher price elasticity of supply in the short run.
C) a higher price elasticity of demand in the short run.
D) an inelastic long-run supply of oil.
Answer: A
Q2) If the demand curve for comic books is expressed as Q = 10,000/p,then demand has a unitary elasticity
A) only when p = 10,000.
B) only when p = 100.
C) always.
D) never.
Answer: C
Q3) In the case of a specific tax,tax incidence is independent of who pays
A) only when supply and demand elasticities are not constant.
B) only when the tax is collected from consumers.
C) in most but not all cases.
D) in all cases.
Answer: D
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Chapter 4: Consumer Choice
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Sample Questions
Q1) If the utility for two goods "x" and "y" is measured as U = x + y,then it can be concluded that
A) "x" and "y" are perfect substitutes.
B) "x" and "y" are perfect complements.
C) "x" and "y" are both bads.
D) the indifference curves on the x,y graph will be upward sloping.
Q2) If both prices decreases by 50%,
A) budget constraint will be unchanged.
B) slope of the budget constraint will increase.
C) slope of the budget constraint will decrease.
D) budget constraint will shift outward in a parallel fashion.
Q3) Which of the following might explain the evidence of an endowment effect in behavioral economics?
A) government regulation
B) knowledge and experience
C) the federal tax code
D) class envy
Q4) Draw the indifference curves for nickels and dimes.Would they ever have a non-constant slope? Explain.
Q5) Explain why most indifference curves are convex.
Page 6
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Chapter 5: Applying Consumer Theory
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Sample Questions
Q1) In response to an increase in the wage rate,the substitution effect will cause a person to
A) supply fewer hours of labor.
B) supply more hours of labor.
C) supply the same hours of labor.
D) have a backward bend in her labor supply curve.
Q2) When John's income was low,he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners.Now that his income is high,a pay raise causes him to dine out more often and buy fewer frozen dinners.Which graph in the above figure best represents John's Engel curve for frozen dinners?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Q3) In the case of a normal good, A) demand curves always slope downward.
B) the income effect and substitution effect are in the same direction.
C) the Engel curve slopes upward.
D) All of the above.
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Page 7
Chapter 6: Firms and Production
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Sample Questions
Q1) Jennifer is the only employee of her sole proprietorship.She is entertaining the idea of hiring an additional employee.She knows that on her own she can produce 100 units per day.Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day.Which of the following statements is most accurate?
A) Applicant B has a marginal product of 75 units.
B) Applicant B has an average product of 77.5 units.
C) Applicant A has a marginal product of 75 units.
D) Applicant A has an average product of 87.5 units.
Q2) Consider the following short-run production function: q = 5L<sup>2</sup> - 1/3 L<sup>3</sup>.At what level of L do diminishing marginal returns begin? At what level of L do diminishing returns begin?
Q3) Suppose the production of mp3 players can be represented by the following production function: q = L<sup>0.4</sup>K<sup>0.4</sup>.<sup> </sup>Which of the following statements is TRUE?
A) The production function has decreasing returns to scale.
B) The production function has increasing returns to scale.
C) The production function has constant returns to scale.
D) Returns to scale vary with the level of output.
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Page 8
Chapter 7: Costs
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Sample Questions
Q1) If average cost is positive,
A) marginal cost equals average cost.
B) marginal cost exceeds average cost.
C) marginal cost is less average cost.
D) Not enough information is given.
Q2) Suppose a firm can only vary the quantity of labor hired in the short run.An increase in the cost of capital will
A) increase the firm's marginal cost.
B) decrease the firm's marginal cost.
C) have no effect on the firm's marginal cost.
D) More information is needed to answer the question.
Q3) Why might a police officer not pull over someone speeding two miles over the speed limit?
A) The explicit costs of stopping the driver over are too high.
B) The opportunity costs of stopping the driver are too high.
C) The opportunity costs of topping he driver are too low.
D) The explicit costs of stopping the driver are too low.
Q4) Explain why the long-run total cost curve,not the short-run total cost curve,shows the lowest cost of producing any level of output.Is there an exception?
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) In deciding whether to operate in the short run,the firm must be concerned with the relationship between price of the output and
A) total cost.
B) average variable cost.
C) total fixed cost.
D) the number of buyers.
Q2) When the production of a good involves several inputs,an increase in the cost of one input will usually cause total costs to
A) rise more than in proportion.
B) rise less than in proportion.
C) remain unchanged.
D) rise by the exact amount of the input price increase.
Q3) Many auction sites,such as eBay,provide a reputation score by which previous customers can rate a seller.Which of the following characteristics of a competitive market is this policy trying to emulate?
A) There is freedom of entry and exit.
B) There are very low transaction costs.
C) There are only one or two sellers.
D) Buyers have more complete information.
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Page 10
Chapter 9: Applying the Competitive Model
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Sample Questions
Q1) The above figure shows supply and demand curves for milk.If the government passes a $2 per gallon specific tax,the loss in consumer surplus will equal
A) b + c + f + g.
B) f + g.
C) b + f.
D) c + g.
Q2) Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Smith's consumer surplus is
A) $5,000.
B) $15,000.
C) $20,000.
D) not able to be calculated from the information given.
Q3) Rent seeking in the form of lobbying for an increase in import tariffs by domestic producers
A) increases consumer surplus.
B) increases total welfare.
C) increases the deadweight loss.
D) None of the above.
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Page 11
Chapter 10: General Equilibrium and Economic Welfare
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Sample Questions
Q1) The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Al has no ability to bargain,the final allocation will be at point
A) a.
B) b.
C) c.
D) d.
Q2) The above figure shows a production possibility frontier for a society with two members,Al and Bruce.If point "a" is the efficient product mix,draw a possible Edgeworth box and indifference curves.
Q3) The term "born with a silver spoon in his mouth" mistakenly implies
A) only monetary endowments allow one to trade with others.
B) only the wealthy are strong negotiators in trade.
C) endowments are physical.
D) endowments differ.
Q4) At a given point in time,the Rawlsian welfare function gives equal weight to each individual's utility.
A)True
B)False
Q5) Explain the logic behind the First Theorem of Welfare Economics.
Page 12
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Chapter 11: Monopoly
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Sample Questions
Q1) If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the deadweight loss from monopoly equals
A) $21.
B) $441.
C) $882.
D) $1,764.
Q2) The monopoly maximizes profit by setting
A) price equal to marginal cost.
B) price equal to marginal revenue.
C) marginal revenue equal to marginal cost.
D) marginal revenue equal to zero.
Q3) The above figure shows the demand and cost curves facing a monopolist.The monopoly maximizes profit by setting price equal to
A) $100.
B) $200.
C) $300.
D) $400.
Q4) Why is the monopoly total welfare lower than the competitive total welfare?
Q5) Explain Microsoft Windows' monopoly positions in terms of network externalities.
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Chapter 12: Pricing and Advertising
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Sample Questions
Q1) The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,social welfare equals
A) A.
B) A + B + C.
C) A + B + C + D + E.
D) zero.
Q2) A firm advertising using an expensive,famous spokesperson is often
A) aimed to raise rivals' costs.
B) used to increase the total market demand.
C) used to steal customers from rivals.
D) used to focus on general problems the product addresses.
Q3) A monopoly will not be able to perfectly price discriminate if A) obtaining information about each buyer's reservation price is too costly.
B) demand is very elastic.
C) demand is very inelastic.
D) resale is impossible.
Q4) Under what conditions would firms be likely to support an industry-wide advertising ban?
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14
Chapter 13: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) The above figure shows the reaction functions for two pizza shops in a small isolated town.Collusion would result in
A) each firm producing 25 pizzas.
B) each firm producing 40 pizzas.
C) the firms splitting the production of 100 making 50 pizzas each.
D) firm A monopolizing the market by selling 50 pizzas.
Q2) The above figure shows the reaction functions for two pizza shops in a small isolated town.The perfect competitive outcome is that
A) each firm produces 40 pizzas.
B) each firm produces 50 pizzas.
C) the firms split the production of 200 pizzas.
D) each firm produces 200 pizzas.
Q3) Perfect competition and monopolistic competition are similar in that firms in both types of market structure will
A) act as price takers.
B) produce a level of output where price equals marginal cost.
C) earn zero profit in the long run.
D) act as price setters.
Q4) What happens in a duopoly if both firms try to act as the Stackelberg leader?
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Chapter 14: Game Theory
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Sample Questions
Q1) The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.Assuming a fixed cost of entry,the outcome will be that the incumbent A) deters entry.
B) chooses the Stackelberg leader level of output but the potential entrant does not enter anyway.
C) chooses the Stackelberg leader level of output and the potential entrant enters.
D) deters entry and earns zero profit.
Q2) Which of the following is LEAST likely characterized by mixed strategies?
A) the choice of whether to go to war or not
B) the choice of which pitch to throw in baseball
C) the choice of which play to run in football
D) the choice of where to kick a soccer penalty shot
Q3) What is the primary difference between a mixed strategy and a pure strategy?
A) Pure strategies are always dominated strategies.
B) Mixed strategies call for randomizing over possible actions, pure strategies do not.
C) Pure strategies are much more common than mixed strategies.
D) Mixed strategies are not optimal whereas pure strategies are.
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Page 16
Chapter 15: Factor Markets
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Sample Questions
Q1) Why is the short-run demand curve for labor downward sloping?
Q2) Which of the following labor markets is more likely to be competitive?
A) Receptionists
B) Singers
C) Soccer players
D) Sculptors
Q3) The marginal expenditure of a monopsonist is $4.The wage it currently pays is $3.The labor supply curve has a constant elasticity.What is the elasticity of the labor supply?
A) 0.33
B) 0.66
C) 1
D) 3
Q4) A change in the wage causes a shift in the supply curve for labor and a
A) shift along the demand curve for labor.
B) shift in the demand curve for labor.
C) rotation in the demand curve for labor.
D) It cannot be determined by the information provided.
Q5) Explain why consumers benefit from a merger between a monopoly producer and its monopoly supplier of labor.
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Chapter 16: Interest Rates, Investments, and Capital Markets
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Sample Questions
Q1) A capital gains tax acts to
A) reduce the interest rate received by loan demanders.
B) increase the interest rate received by loan demanders.
C) increase the interest rate received by loan suppliers.
D) reduce the interest rate received by loan suppliers.
Q2) A bond issuer agrees to pay a stated nominal amount each year.An increase in the nominal interest rate will cause
A) the price of the bond to fall.
B) the price of the bond to rise.
C) the nominal value of the bond's coupon to rise.
D) the nominal value of the bond's coupon to fall.
Q3) If an asset has a present value of $50 and appreciates at an interest rate of 4%,what is the asset's future value in 47 compounding periods?
A) Approximately $400
B) Approximately $316
C) Approximately $137
D) Approximately $1143
Q4) In an economy with no inflation,explain why interest rates are positive.
Page 18
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Chapter 17: Uncertainty
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Sample Questions
Q1) Sports announcers often refer to a batter in a hitting slump as "being due." If they are correct,then it must be the case that
A) a batter's hits are randomly distributed.
B) a batter's at-bats are related to each other.
C) a batter's at-bats are independent of each other.
D) baseball players are acting irrationally.
Q2) Farmers who purchase insurance against crop failures tend to be pooled with farmers far away.Why might this be the case?
A) The weather in a single geographic area represents idiosyncratic risk, which is diversifiable.
B) The weather in a single geographic area represents systematic risk, which is not diversifiable.
C) The weather in far-flung geographic areas represents systematic risk, which is not diversifiable.
D) The weather in far-flung geographic areas are commonly positively correlated.
Q3) Explain why insurance companies usually do not offer earthquake insurance.
Q4) If a person is risk averse,then she has negative marginal utility of wealth.
A)True
B)False
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Chapter 18: Externalities, Open-Access, and Public Goods
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Sample Questions
Q1) If the median voter voted against a project,we can infer that
A) at least half of the voters also voted against it.
B) at most a third of the voters voted against the project.
C) the project was approved.
D) at least half of the voters voted in favor of the project.
Q2) In the case of a good that has no exclusion and no rivalry,private markets fail because
A) of free-ridership.
B) this is a natural monopoly.
C) profit is driven down to zero.
D) the quantity produced will exceed the social optimum.
Q3) Over-fishing of common fishing grounds happens because fishing grounds are a common property and social and private incentive are the same.
A)True
B)False
Q4) The total demand for a public good is found by
A) horizontally summing all individual demands.
B) vertically summing all individual demands.
C) finding the demand from the median voter.
D) dividing the marginal cost of the good by the number of voters.
Page 20
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Chapter 19: Asymmetric Information
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Sample Questions
Q1) A downtown diner daily serving the same business people will be more likely to serve a tasty lunch than a snack bar at a tourist attraction.
A)True
B)False
Q2) In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device,we can say that A) education is socially inefficient because it is costly and provides no useful skills to the worker.
B) education is socially efficient.
C) education is privately inefficient for high-skill workers.
D) education is privately useful for low-skill workers only.
Q3) If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is
A) using the trade publication as a screening tool.
B) using the trade publication as a signaling tool.
C) using the trade publication as a form of statistical discrimination.
D) using the trade publication for the wrong reasons.
Q4) Explain how product liability laws can reduce adverse selection.
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Page 21
Chapter 20: Contracts and Moral Hazards
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Sample Questions
Q1) In professional golf,a tournament winner might win,say,$1 million,whereas second place wins only $600,000.Why might golf have a 40% reduction in prize money from first and second place?
A) To ensure that there is enough money to pay those who finish near last.
B) To motivate golfers to take risks they might not otherwise take.
C) To motivate golfers to not take risks they might otherwise take.
D) The Professional Golfers Association is a cartel.
Q2) We can say that a contract is able to prevent moral hazard when
A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse people.
B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving people.
C) it shifts risk to risk-loving people.
D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse people.
Q3) Explain why checks on principals might be necessary.
Q4) If information is asymmetric,explain why the hire contract is not efficient in production and a moral hazard exists,but the fixed fee to the principal contract is efficient and does not pose a moral hazard problem.
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