Environmental Economics
Mock Exam
Course Introduction
Environmental Economics explores the economic principles and analytical tools used to understand and address environmental issues. The course examines the causes of environmental problems such as pollution and natural resource depletion, evaluates policy instruments including taxes, subsidies, and regulation, and investigates the concepts of externalities, public goods, and cost-benefit analysis. Students analyze case studies to understand trade-offs between economic development and environmental protection, and develop strategies for promoting sustainability through market-based and policy approaches. This course equips students with the skills to critically assess environmental policies and to contribute informed perspectives on contemporary environmental challenges.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Page 2
Chapter 1: Preferences and Utility
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Sample Questions
Q1) If utility is given by U(x,y)= Min (x,3y)then the bundle (3,2)provides the same utility as the bundle
A)(1,3).
B)(2,3).
C)(4,1).
D)(4,2).
Answer: C
Q2) Which of the following utility functions would not be consistent with the notion that x and y are both "goods" with positive marginal utilities?
A) \(U ( x , y ) = x ^ { 2 } y\) .
B)U(x,y)= x + y .
C) \(U ( x , y ) = x \sqrt { y }\) .
D)U(x,y)= x/y .
Answer: D
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Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) The slope of the budget constraint line is
A)the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
B)the negative of the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
C)the ratio of income divided by price of y (I/p<sub>y</sub>).
D)none of these is correct.
Q2) Suppose an individual's MRS (of steak for beer)is 2:1.That is,at the current consumption choices he or she is willing to give up 2 beers to get an extra steak.Suppose also that the price of a steak is $1 and a beer is 254.Then in order to increase utility the individual should
A)buy more steak and less beer.
B)buy more beer and less steak.
C)continue with current consumption plans.
Q3) "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)that saving is impossible and that the individual is not satiated in all goods.
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4
Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) If the compensated and Marshallian demand curves for a good intersect,at that point the Marshallian curve will be
A)flatter if this is a normal good.
B)steeper if this is a normal good.
C)flatter if this is an inferior good.
D)horizontal.
Q2) The price elasticity of demand for a linear demand curve follows the pattern (moving from high prices to low prices)
A)elastic,unit elastic,inelastic.
B)unit elastic,inelastic,elastic.
C)inelastic,unit elastic,elastic.
D)elastic,inelastic,unit elastic.
Q3) The price elasticity of demand for a horizontal demand curve is A)0.
B)-1.
C)1. D)-infinity.
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) If a rise in the price x causes less y to be demanded,
A)x and y are gross complements.
B)x and y are gross substitutes.
C)x and y are net complements.
D)x and y are net substitutes.
Q2) Two goods are Hicksian (net)substitutes if a rise in the price of one causes a(n)
A)decline in the quantity demanded of the other holding nominal income constant.
B)increase in the quantity demanded of the other holding nominal income constant.
C)decline in the quantity demanded of the other holding utility constant.
D)increase in the quantity demanded of the other holding utility constant.
Q3) Symmetry of net substitution effects is one of the principal conclusions of the theory of utility maximization.Which two mathematical theorems are used to prove this symmetry?
A)Taylor's Theorem and Fundamental Theorem of Calculus.
B)Cauchy's Theorem and DeMonre's Theorem.
C)Lagrangian Theorem and Fundamental Theorem of Calculus.
D)Envelope Theorem and Young's Theorem.
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Page 6
Chapter 5: Uncertainty and Information
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Sample Questions
Q1) Which of the following utility functions would indicate the most (relative)risk averse behavior?
A)U(W)= W.
B)U(W)= \(\sqrt { W }\) .
C)U(W)= ln W.
D)U(W)= -1/W.
Q2) The option to delay the choice of portfolio allocation is valuable because A)interest costs are positive.
B)volatility of returns is lower.
C)more can be placed into high return,risky assets.
D)the allocation can be based on new information.
Q3) Which of the following utility functions exhibits constant absolute risk aversion?
A)U(W)= W.
B) \(U ( W ) = W - 0.5 W ^ { 2 }\)
C)U(W)= ln W.
D)U(W)= \(- e ^ { - W }\) .
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Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) In a mixed-strategy Nash equilibrium,a player is willing to randomize because
A)this confuses opponents.
B)he or she is indifferent between the actions in equilibrium.
C)the actions provide the same payoffs regardless of what the other player does.
D)he or she does not know what the other player is doing.
Q2) For an infinitely repeated game promising A per period with continuing cooperation,B for the one period gain from cheating and C per period for the non-cooperative solution (B > A > C)will have a subgame perfect Nash equilibrium in trigger strategies providing
A) > B/(A + C).
B) > (B - A)/(B - C).
C) > B/(A - C).
D) > A/(B + C).
Q3) A game of incomplete information is distinct from one of complete information in that players
A)do not observe each others' actions.
B)do not know each others' payoff functions.
C)do not know the timing of moves.
D)use mixed strategies.
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Page 8
Chapter 7: Production Functions
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Sample Questions
Q1) The marginal physical productivity of labor is defined as
A)a firm's total output divided by total labor input.
B)the extra output produced by employing one more unit of labor while allowing other inputs to vary.
C)the extra output produced by employing one more unit of labor while holding other inputs constant.
D)the extra output produced by employing one more unit of capital while holding labor input constant.
Q2) Suppose the production function for good q is given by \(q = 3 k + 2 l\) where k and l are capital and labor inputs.Consider three statements about this function:
I.The function exhibits constant returns to scale.
II.The function exhibits diminishing marginal productivities to all inputs.
III.The function has a constant rate of technical substitution. Which of these statements is true?
A)All of them.
B)None of them.
C)I and II but not III.
D)I and III but not II.
E)only I.
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Chapter 8: Cost Functions
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Sample Questions
Q1) Technical progress will
A)shift a firm's production function and its related cost curves.
B)not affect the production function,but may shift cost curves.
C)shift a firm's production function and alter its marginal revenue curve.
D)shift a firm's production function and cause more capital (and less labor)to be hired.
Q2) For a constant returns to scale production function
A)marginal costs are constant but the average cost curve has a U-shape.
B)both average and marginal costs are constant.
C)marginal cost has a U-shape; average costs are constant.
D)both average and marginal cost curves are U-shaped.
Q3) The Cobb-Douglas production function \(q = k ^ { ~.5 } l ^ {~ .75 }\) yields the cost function C = (where B is a constant).
A) \(B q v ^ { 1 / 2 } w ^ { 3 / 4 }\) .
B) \(B q ^ { 5 / 4 }~ v ^ { 1 / 2 } ~w ^ { 3 / 4 }\) .
C) \(B q ^ { 4 / 5 } ~~v ^ { I / 2 } ~~w ^ { 3/4 }\) .
D) \(B q ^ { 4 / 5 } ~~v ^ { 2 / 5 } ~~w ^ { 3 / 5 }\) .
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Chapter 9: Profit Maximization
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Sample Questions
Q1) Suppose capital and labor must be used in fixed proportions to produce widgets and that the price elasticity of demand for widgets is zero.Then the wage elasticity of demand for labor by widget makers will be A)+1.
B)-1.
C)0.
D)infinite.
Q2) Input demand functions that are calculated from profit functions differ from those calculated from cost functions because
A)they assume cost-minimization.
B)they hold output constant.
C)they assume output price is constant.
D)they assume output is set at its profit-maximizing level.
Q3) If a price-taking firm's production function is given by \(q = \sqrt { l }\) ,its profit function is given by
A) \(p / 2 w\) .
B) \(p ^ { 2 } / 2 w\) .
C) \(p / 2 w ^ { 2 }\) .
D) \(p ^ { 2 } / 4 w\) .
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Page 11
Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) One way to minimize the excess burden resulting from a specific tax is to
A)tax only wealthy firms and individuals.
B)spread the tax over many goods and services.
C)tax goods for which either supply or demand is inelastic.
D)tax luxury items such as yachts and sports cars.
Q2) Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1.Assume also that the income elasticity of demand is +2.Then an increase in income of 10% will raise equilibrium price by A)10%.
B)5%.
C)20%.
D)an annual amount that cannot be determined.
Q3) When a quota/trade barrier is instituted,the loss of domestic consumer surplus may be transferred to all of the following except:
A)foreign consumers.
B)domestic producers.
C)foreign producers.
D)consumers of other domestic products.
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Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) In volatile markets,"speculators" would be expected to provide some stability because
A)they will be required to do so by the government.
B)they will use current price moves to predict future moves.
C)they will buy when price is below equilibrium and sell when it is above equilibrium.
D)they will buy when price is above equilibrium and sell when it is below equilibrium.
Q2) Suppose that the two persons in an exchange economy (A and B)have utility functions given by \(\begin{array} { l }
U _ { A } = x + 2 y \\
U _ { B } = \sqrt { x y }
\end{array}\) Along the contract curve,B's ratio of Y to X will be A)2:1.
B)1:1.
C)1:2.
D)between 1:1 and 1:2.
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13
Chapter 12: Monopoly
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Sample Questions
Q1) One possible benefit of a monopoly is
A)a more efficient allocation of resources; only one firm is needed to supply quantity demanded.
B)greater opportunities for research due to long-run positive economic profits.
C)the government is better able to ensure that it follows laws and guidelines because there is only one firm to monitor.
D)goods and services are provided at a lower price than under perfect competition because of a monopoly's decreasing average cost curve.
Q2) A monopoly's economic profits are represented by
A)(price minus marginal cost)times number of units sold.
B)(price minus average cost)times number of units sold.
C)(marginal revenue minus price)times number of units sold.
D)(marginal cost minus price)times number of units sold.
Q3) For the practice of price discrimination to be successful,the monopoly must
A)be able to prevent resale of its product.
B)face similar demand curves for various markets.
C)have similar costs among markets.
D)have a downward sloping marginal cost curve.
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Chapter 13: Imperfect Competition
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Sample Questions
Q1) The Nash equilibrium of the Cournot game in which two identical firms face market demand \(P ( Q ) = 300 - 3 Q\) and have costs \(C \left( q _ { i } \right) = 50 q _ { i }\) is given by \(q _ { 1 } ^ { * } = q _ { 2 } ^ { * } =\)
A)50.0.
B)41.7.
C)31.5.
D)27.8.
Q2) In a Cournot equilibrium each firm chooses an output level which A)maximizes joint profits.
B)maximizes the price received.
C)maximizes profits given what the other firms produce.
D)maximizes revenue given what the other firms produce.
Q3) All of the following are problems associated with maintaining a cartel except A)cartels are illegal.
B)a large amount of information is needed to coordinate a cartel.
C)profits are not maximized by a cartel so it will evolve into a monopoly.
D)each member of the cartel has an incentive to "chisel" by expanding output.
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Chapter 14: Labor Markets
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Sample Questions
Q1) If an individual's supply of labor curve is positively sloped throughout,then
A)the substitution effect always dominates the income effect.
B)the income effect always dominates the substitution effect.
C)the substitution effect dominates at low real wage levels and the income effect dominates at high real wage levels.
D)the income effect dominates at low real wage levels and the substitution effect dominates at high real wage levels.
Q2) Which of the following strategies that a union might pursue would result in the lowest wage rate for its members?
A)Maximizing the total wage bill.
B)Maximizing employment of its members.
C)Restricting union membership severely.
D)Maximizing the total economic rent obtained by its members.
Q3) If an individual is maximizing his or her utility,his or her marginal rate of substitution of leisure hours for consumption will be
A)equal to one divided by his or her wage rate.
B)greater than one divided by his or her wage rate.
C)equal to his or her wage rate.
D)less than his or her wage rate.
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Page 16
Chapter 15: Capital and Time
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Sample Questions
Q1) Adding uncertainty to future consumption will tend to increase savings providing:
A) \(U ^ { \prime \prime } > 0\) .
B) \(U ^ { \prime \prime } / U ^ { t } > 0\) .
C) \(U ^ { \prime \prime } / U ^ { t } < 0\) .
D) \(U ^ { \prime\prime\prime} > 0\) .
Q2) If a tree's value (v)is growing according to the equation \(v ( t ) = e ^ { . i t - .0025 s t }\) with an interest rate of 5 percent,the tree should be harvested when t = A)5 years.
B)10 years.
C)25 years.
D)100 years.
Q3) Under competitive conditions the relative price of a finite resource would be expected to
A)rise at an increasing rate.
B)rise at a rate equal to the real interest rate.
C)rise at a rate equal to the nominal interest rate.
D)rise at a rate determined by demand conditions.
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Chapter 16: Asymmetric Information
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Sample Questions
Q1) Consider a firm composed of 5 workers,each with a utility function of the form \(U ( l ) = w l - l ^ { 2 }\) where l is hours worked and w is the wage.Suppose the firm can monitor the number of hours worked by each worker and pays them \(w = 20\) per hour.How many hours will each worker choose to work?
A)2 hours.
B)4 hours.
C)8 hours.
D)10 hours.
Q2) Compared to the case in which a monopoly insurer offers the consumer a contract,if insurance is competitively provided,
A)any moral hazard or adverse-selection problem is alleviated.
B)any moral hazard or adverse-selection problem is worsened.
C)the essence of any moral hazard or adverse-selection problem would not change much.
D)insurers would no longer offer menus of contracts.
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18
Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) Perfectly competitive markets will tend to underallocate resources to nonexclusive public goods because
A)these goods are produced under conditions of increasing returns to scale.
B)no single individual can appropriate the total benefits provided by the purchase of such goods.
C)these goods are best produced under conditions of monopoly.
D)no private producer can provide the capital necessary to produce such goods.
Q2) Externalities between two firms can be "internalized" if:
I.The two firms merge.
II.Bargaining costs are zero.
III.The externalities affect each firm equally.
IV.Marginal costs for both firms are constant. Which statement(s)correctly complete the sentence?
A)Only II.
B)All except III.
C)I and II,but not III and IV.
D)I and IV,but not II and III.
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