Environmental Economics
Textbook Exam Questions
Course Introduction
Environmental Economics explores the intersection of economic theory and environmental issues, focusing on how economic tools and principles can be used to address environmental challenges such as pollution, resource depletion, and climate change. The course examines the causes and consequences of environmental problems, evaluates policy instruments like taxes, subsidies, and tradable permits, and discusses the economic valuation of environmental goods and services. Students gain an understanding of cost-benefit analysis, market failures, and the role of government and international organizations in promoting sustainable development and environmental protection.
Recommended Textbook
Environmental Economics and Management Theory Policy and Applications 6th Edition by Scott
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Page 2
Chapter 1: The Role of Economics in Environmental Management
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Sample Questions
Q1) In the Circular Flow Model, money flows are disregarded.
A)True
B)False
Answer: False
Q2) The discipline concerned with the resource flow from economic activity back to nature is known as natural resource economics.
A)True
B)False
Answer: False
Q3) A school bus is an example of
A) a stationary source
B) a mobile source
C) a nonpoint source
D) none of the above
Answer: B
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) Equilibrium price is the price level at which Q<sub>D</sub> equals Q<sub>S</sub>.
A)True
B)False
Answer: True
Q2) If a firm is producing at an output level such that the MR is $550 and the MC is $780,
A) the firm incurs a total loss of $230
B) the firm should contract production because marginal profit is less than zero
C) M is +$230
D) the firm should expand its output level because its total revenue is rising by $550
Answer: B
Q3) A competitive market is characterized by
A) the absence of entry barriers
B) many buyers with a single seller
C) imperfect information
D) a differentiated product
Answer: A
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4
Chapter 3: Modeling Market Failure
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Sample Questions
Q1) According to the Coase Theorem
A) efficiency can result only if producers hold the property rights
B) an efficient outcome is possible as long as property rights are assigned
C) efficiency is not possible in the presence of an environmental externality
D) none of the above
Answer: B
Q2) If the third-party effects of a good generate benefits to a third party, it is a positive externality.
A)True
B)False Answer: True
Q3) A public good is characterized as possessing either nonrivalry in consumption or nonexcludable benefits.
A)True
B)False Answer: False
Q4) At an efficient equilibrium, MSB = MSC, which implies that M = MEC.
A)True
B)False Answer: True
Page 5
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Chapter 4: Conventional Solutions to Environmental
Problems: Command-And-Control Approach
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Q1) Much of the air pollution in Catano, Puerto Rico was linked to a nearby oil refinery.
A)True
B)False
Q2) By definition, the marginal abatement cost (MAC) curve shows the change in costs associated with higher levels of abatement, using the most widely available technology.
A)True
B)False
Q3) The marginal social benefit (MSB) of abatement represents
A) the additional gains to society from reducing pollution
B) the reduction in damages from abatement
C) society's demand for abatement or environmental quality
D) all of the above
Q4) Among the reasons that may explain why abatement standards are not set efficiently is imperfect information.
A)True
B)False
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Chapter 5: Economic Solutions to Environmental Problems: the Market Approach
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Q1) A payment or tax concession aimed at lowering the cost of abating is called a pollution charge.
A)True
B)False
Q2) Major categories of market-based instruments include
A) pollution charges
B) subsidies
C) deposit/refund systems
D) pollution permit trading systems
E) all of the above
Q3) In the single-polluter case, suppose a firm faces an emission charge implemented as a marginal tax (MT) of 12 and that its MAC = 0.8A. Based on this information, the firm
A) is better off paying the tax at abatement levels below 15 units
B) should abate pollution for all abatement levels up to 15 units
C) is better off paying the tax as long as the abatement level is 1.5 units or less
D) none of the above
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Chapter 6: Environmental Risk Analysis
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Q1) In defining environmental risk, exposure refers to the A) source of environmental damage and the benefits of eliminating the damage
B) pathway between the source of the environmental damage and the affected population
C) pathway between the source of the environmental damage and the affected natural resource
D) all of the above
E) (b) and (c) only
Q2) In the United States, all environmental laws set environmental risk at a level where the MSB equals the MSC.
A)True
B)False
Q3) Scientific methods used to identify environmental health hazards include all of the following EXCEPT
A) case clusters
B) epidemiological studies
C) problem formulation
D) animal bioassays
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8
Chapter 7: Assessing Benefits for Environmental Decision Making
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Q1) The contingent valuation method involves
A) constructing a hypothetical market
B) designing a valid survey instrument to gather WTP data
C) evaluating the truthfulness of responses
D) all of the above
E) (a) and (c) only
Q2) There is some debate about whether secondary benefits should be considered when assessing public policy proposals. Identify two reasons why secondary benefits might be excluded from a benefit-cost analysis of proposed environmental policy.
Q3) The benefit received from the continuance of an environmental good is called
A) user value
B) stewardship
C) existence value
D) vicarious consumption
Q4) A known problem associated with the averting expenditure method is jointness of production, which refers to goods that provide services beyond those that improve the environment.
A)True
B)False
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Chapter 8: Assessing Costs for Environmental Decision Making
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Sample Questions
Q1) Labor expenditures associated with carrying out an abatement process are considered to be part of
A) capital costs
B) fixed costs
C) operating costs
D) implicit costs
E) none of the above
Q2) According to the U.S. data presented in the text, the highest proportion of operating and capital abatement costs is on recycling.
A)True
B)False
Q3) Newly proposed controls on GHG emissions from motor vehicles are expected to elevate automobile prices.
A)True
B)False
Q4) The accounting equivalent of variable costs is capital costs.
A)True
B)False
Page 10
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Chapter 9: Benefit-Cost Analysis in Environmental Decision
Making
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Q1) Achieving cost-effectiveness means that the present value of costs (PVC) is minimized for some pre-established benefit goal.
A)True
B)False
Q2) If, for a given policy option, PVNB equals $1,200, and PVC equals $800, then
A) the policy option is not feasible because the value of PVB is $400
B) the ratio, PVB/PVC, equals 1.5
C) the policy option is feasible because (PVB - PVC) is greater than unity
D) there is insufficient information to determine if the policy option is feasible
Q3) For a given policy option, if (PVB - PVC) is greater than 1, that policy option is considered to be feasible.
A)True
B)False
Q4) Among the chief concerns about the use of benefit-cost analysis is that
A) monetizing the benefits of a policy proposal is difficult
B) identifying and estimating implicit costs is a major challenge
C) equity might not be achieved if, for example, costs are distributed unevenly
D) all of the above
E) none of the above
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Chapter 10: Defining Air Quality: the Standard-Setting Process
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Sample Questions
Q1) Among the criteria pollutants identified in the United States is carbon dioxide. A)True
B)False
Q2) According to the EPA's first prospective study of the Clean Air Act Amendments (CAAA) of 1990,
A) these amendments do not pass the feasibility test
B) the estimated present value of benefits outweigh the present value of costs
C) the CAAA achieve allocative efficiency
D) the present value of net benefits associated with these amendments are negative
Q3) 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
Q4) Based on the EPA's first and second prospective studies of the 1990 Clean Air Act Amendments, the associated net benefits of this legislation are greater than zero. A)True B)False
Page 12
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Chapter 11: Improving Air Quality: Controlling Mobile
Sources
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Q1) The Air Quality Index (AQI) is formed from concentration data collected from a monitoring network that measures hazardous air pollutants.
A)True
B)False
Q2) According to the textbook application, China's demand for automobiles
A) is linked in part to the nation's rising income and economic prosperity
B) is limited because of the absence of automobile plants in China
C) has declined because of the migration of people from urban to rural areas
D) has grown slowly over the past several years
Q3) Ethanol (E85) is a blend of 85 percent ethanol and 15 percent gasoline.
A)True
B)False
Q4) According to a study conducted by the National Academy of Sciences, a uniform standard imposed on motor vehicles would be more cost-effective than a two-tiered standard.
A)True
B)False
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Chapter 12: Improving Air Quality: Controlling Stationary Sources
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Sample Questions
Q1) According to the cost-effectiveness criterion, trading of SO<sub>2</sub> allowances under the CAA should continue as long as MSB<sub>abatement</sub> > MSC<sub>abatement.</sub>
A)True
B)False
Q2) Relative to mobile sources, stationary sources are bigger emitters of sulfur oxides. A)True
B)False
Q3) Explain why the current abatement levels for the two sources do not achieve cost effectiveness.
Q4) The Clean Air Interstate Rule (CAIR)
A) established three trading programs, one for SO<sub>2</sub> and two for NO<sub>X</sub>
B) was enacted under the Obama Administration
C) set emissions limits without any accompanying trading program
D) all of the above
E) none of the above
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Chapter 13: Global Air Quality: Policies for Ozone Depletion and Climate Change
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Q1) Under the Kyoto protocol, developed and developing countries have the same responsibilities and commitments.
A)True
B)False
Q2) The "greenhouse effect" is a natural phenomenon.
A)True
B)False
Q3) In the United States, the use of CFCs in most aerosol sprays was banned in
A) 1987
B) 1978
C) 2005
D) 1970
Q4) All of the following are major greenhouse gases (GHGs), EXCEPT
A) carbon dioxide (CO<sub>2</sub>)
B) methane (CH<sub>4</sub>)
C) nitrous oxide (N<sub>2</sub>O)
D) volatile organic compounds (VOCs)
Q5) During the Bush administration, the United States ratified the Kyoto Protocol.
A)True
B)False
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Chapter 14: Defining Water Quality: the Standard-Setting Process
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Sample Questions
Q1) Technology-based effluent limitations are defined by a states' receiving water quality standard.
A)True
B)False
Q2) In the U.S., the two components of the receiving water quality standards are
A) the BAT and the BCT
B) use-support status and effluent limitations
C) the use designation and water quality criteria
D) the zero discharge goal and the NPDES
Q3) Suppose that the benefits and costs of water quality policy have been estimated as follows:
MSB = 40 - 0.8A MSC = 10 + 0.2A TSB = 40A - 0.4A<sup>2</sup> TSC = 10A + 0.1A<sup>2</sup>, where A is the percentage of pollution abatement and the benefits and costs are measured in thousands of dollars.
a. Determine the range of abatement within which policy achieves positive net benefits.
b. Find the efficient level of abatement.
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Page 16
Chapter 15: Improving Water Quality: Controlling Point and Nonpoint Sources
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Q1) When polluting sources with different Marginal Abatement Costs (MACs) are faced with a Marginal Effluent Fee (MEF), each abates at a different level, which means that the effluent fee does not achieve a cost-effective solution.
A)True
B)False
Q2) If water quality law prevents the achievement of the efficiency criterion
A) that law must be repealed
B) a "second-best" economic solution is to identify cost-effective policy initiatives
C) cost-effectiveness is also prevented
D) polluting sources should abate up to the point where total social benefits are maximized
Q3) The presidential Executive Order that is dedicated to the restoration of the Chesapeake Bay proposes a strictly command-and-control approach to restore and protect this natural resource.
A)True
B)False
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17
Chapter 16: Protecting Safe Drinking Water
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Sample Questions
Q1) The EPA formulated the Drinking Water Strategy (DWS)
A) under the Clinton administration
B) to recognize the importance of addressing contaminants one at a time
C) with four identified goals, including one to develop new drinking water technologies
D) solely to revise regulations for private well water
Q2) U.S. primary drinking water regulations are performance-based standards.
A)True
B)False
Q3) The water pricing scheme that offers an economic incentive to conserve water usage is the declining block pricing structure.
A)True
B)False
Q4) Supplies of drinking water depend on
A) ground water
B) surface water
C) water resources protected by the Clean Water Act
D) all of the above
E) none of the above
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Chapter 17: Managing Hazardous Solid Waste and Waste Sites
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Q1) The first federal legislation passed in the United States that dealt with waste control was the Resource Conservation and Recovery Act (RCRA) of 1976.
A)True
B)False
Q2) A set of control strategies to reduce the amount and toxicity of hazardous waste at every stage of the waste stream is known as
A) source reduction
B) waste management
C) "cradle-to-grave" management
D) risk-benefit analysis
Q3) In assessing Superfund, we observe
A) a market-based approach to waste site clean-up
B) the use of benefit-cost analysis to determine abatement levels
C) inefficiency due to uniform site cleanup
D) weak legal standards to identify PRPs
Q4) A permit system is used to control hazardous waste management at treatment, storage, and disposal facilities (TSDFs).
A)True
B)False
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Chapter 18: Managing Municipal Solid Waste
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Q1) Pay-as-you-throw (PAYT) programs, also known as unit pricing schemes, A) are uncommon in the United States
B) lack incentives because they are strictly command-and-control in approach C) can be implemented using flat rate pricing or variable rate pricing D) none of the above
Q2) The "Green Dot Program" is
A) an international law to reduce plastics in packaging
B) a private plan in Germany for collection and recycling of packaging C) a waste management plan operated by the German government D) a model waste program because of its low start-up and operating costs
Q3) If there is a negative externality associated with consumption of a product, the MSB of that product is below the MPB.
A)True
B)False
Q4) The recycling rate in the United States is higher than that of any other nation in the world.
A)True
B)False
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Chapter 19: Controlling Pesticides and Toxic Chemicals
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Q1) The primary goal of the Pesticide Environmental Stewardship Program (PESP) is to regulate pesticide use.
A)True
B)False
Q2) Pesticide registration results in a formal listing with the EPA that is based on benefit-cost analysis.
A)True B)False
Q3) Under the Toxic Substances Control Act (TSCA)
A) a registration procedure is used to control the introduction of new chemical substances
B) manufacturers are required to notify the government of a new chemical by the day it is introduced into commerce
C) producers must notify the government 90 days before they plan to produce a new chemical
D) the EPA has one year to evaluate the risks and respond to a manufacturer's premanufacture notice (PMN) of a new chemical
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Chapter 20: Sustainable Development: International Environmental Agreements
and International Trade
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Q1) Available data indicate that the reduction of trade barriers associated with the World Trade Organization (WTO) has led to improved trade flows.
A)True
B)False
Q2) Achieving both environmental quality and economic prosperity is
A) represented at all points along the Kuznets Curve
B) a view supported by the Nobel Laureate, Robert Solow
C) the overall goal of sustainable development
D) strictly a short-term objective
Q3) Both environmentalists and free trade advocates supported the General Agreement on Tariffs and Trade (GATT).
A)True
B)False
Q4) Protectionists support the use of trade barriers, such as tariffs and quotas.
A)True
B)False
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Page 22
Chapter 21: Sustainable Approaches: Industrial Ecology and
Pollution Prevention
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Q1) A typical life cycle assessment (LCA)
A) has three components
B) evaluates all stages of a product or process from raw materials extraction to disposal C) addresses only the environmental risks to human health
D) ignores ecological risk
Q2) Industrial ecology and sustainable development are equivalent concepts.
A)True
B)False
Q3) A systems approach to the flow of materials and energy between industrial processes and the environment is known as a life cycle assessment.
A)True
B)False
Q4) According to the textbook application, the International Organization for Standardization (ISO) has developed standards for environmental management. Identified as
A) ISO 1500
B) ISO 15000
C) ISO 1400
D) ISO 14000
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