Questions and Answers of Environmental Economics

In your own words, define biodiversity.
Why should society conserve biodiversity?
How do we decide which species to save and which to leave unprotected?
'Sometimes biodiversity conservation policies can make things worse.' Discuss this statement in relation to a specific policy.
Define what might represent a cost-effective conservation policy.
Economists believe that energy plays three key roles in our lives. Explain.
Explain the economic model of how society should extract its natural resources.
Why do the predictions of the simple version of Hotelling's rule not always hold?
Is the market price of oil an accurate measure of resource scarcity?
Define the idea of lifetime of a resource as a measure of resource scarcity. Why don't most economists believe it is a helpful measure?
Explain the idea behind the rebound effect in energy efficiency questions.
How do high oil prices affect how one should think about the idea of Hubbert's peak oil?
Would a private forest owner normally be expected to reach an efficient balance between using his or her forest for recreation and for harvesting wood? Why or why not?
Compare forest certification and the certification of organic produce in terms of the relative degree to which each type of certification could, by itself, produce an efficient outcome.
Would a rise in the price of timber make sustainable forest practices more or less likely? Why?
Is the establishment of the 200-mile limit a sufficient form of government intervention to ensure that the tragedy of the commons does not occur for fisheries within the 200-mile limit? Why or why
With discounting it is possible for the efficient fish population to fall below the level required to produce the maximum sustained yield. Does this violate the sustainability criterion? Why or why
Assume that the relationship between the growth of a fish population and the population size can be expressed as g = 4P - 0. 1P2, where g is the growth in tons and P is the size of the population (in
Assume that a local fisheries council imposes an enforceable quota of 100 tons of fish on a particular fishing ground for one year. Assume further that 100 tons per year is the efficient sustained
In the economic model of the fishery developed in this chapter, compare the effect on fishing effort of an increase in cost of a fishing license with an increase in a per-unit tax on fishing effort
When trying to reduce the degree of inefficiency from an open-access fishery, would a regulation that increases the marginal cost of fishing effort by banning certain types of gear or a tax on effort
a. In the typical economic model of an efficient fishery would a fall in the price of fish generally result in a larger or a smaller sustainable harvest?Why?b. Suppose the fishery allowed free
Suppose that a particular fishery experiences a technological change such that the fixed cost of fishing increases, but the marginal cost of fishing decreases.The change is such that the before and
In his book What Price Incentives? Steven Kelman suggests that from an ethical point of view, the use of economic incentives (such as emissions charges or emissions trading) in environmental policy
Two firms can control emissions at the following marginal costs: MC1 = $200q1, MC2 = $100q2, where q1 and q2 are, respectively, the amount of emissions reduced by the first and second firms. Assume
Assume that the control authority wanted to reach its objective in 1 (a) by using an emissions charge system.a. What per-unit charge should be imposed?b. How much revenue would the control authority
In a region that must reduce emissions, three polluters currently emit 30 units of emissions. The three firms have the following marginal abatement cost functions that describe how marginal costs
The efficient regulation of hazardous pollutants should take exposure into account—the more persons exposed to a given pollutant concentration, the larger is the damage caused by it and therefore
European countries have relied to a much greater extent on emissions charges than has the United States, which seems to be moving toward a greater reliance on cap-and-trade. From an efficiency point
The marginal control cost curves for two air pollutant sources affecting a single receptor are MC1 = $0.3q1 and MC2 = $0.5q2, where q1 and q2 are controlled emissions. Their respective transfer
Would imposing the same tax rate on every unit of emissions normally be expected to yield a cost-effective allocation of pollution control responsibility?Does your answer depend on whether the
Suppose in an emissions trading system the permits are allocated free of charge to emitters on the basis of how much they have historically emitted.Can that allocation be consistent with
Concerned individuals can now seek to reduce their carbon footprint by buying offsets. Air travelers, for example, are now asked if they wish to purchase offsets when they buy their ticket. Is this a
Explain why an acid rain policy using emissions-charge revenue to provide capital and operating subsidies for scrubbers is less cost-effective than an emissions-charge policy alone.
The transfer costs associated with an emissions-charge approach to controlling chlorofluorocarbon pollution are unusually large in comparison to other pollutants. What circumstances would lead to
Label the following as True, False, or Uncertain and explain your choice. (Uncertain means that it can be either true or false depending upon the circumstances).a. The imposition of a tax on
When a threshold concentration is used as the basis for pollution control, as it is for air pollution, one possibility for meeting the threshold at minimum cost is to spread the emissions out over
What are the advantages and disadvantages of using an increase in the gasoline tax to move road transport decisions toward both efficiency and sustainability?
“While gasoline taxes and fuel economy standards can both be effective in increasing the number of miles per gallon in new vehicles, gasoline taxes are superior means of reducing emissions from the
Suppose the nation wishes to reduce gasoline consumption not only to promote national security, but also to reduce the threats from climate change.a. How effective is a strategy relying on the
a. If a pay-as-you-drive insurance program is being implemented to cope with automobile related externalities associated with driving, what factors should be considered in setting the premium?b.
“The only permanent solution to water pollution control will occur when all production by-products are routinely recycled. The zero-discharge goal recognizes this reality and forces all dischargers
“In exercising its responsibility to protect the nation’s drinking water, the government needs to intervene only in the case of public-water supplies.Private-water supplies will be adequately
Consider the situation posed in Problem 1(a) in Chapter 14. a. Compute the allocation that would result if 10 tradable effluent permits were given to the second source and 9 were given to the first
Suppose you have three production facilities that are polluting a river. Each emits 10 units of pollution. Their marginal cost functions for reducing emissions are, respectively, MC1 = $3, MC2 = $4,
“In environmental liability cases, courts have some discretion regarding the magnitude of compensation polluters should be forced to pay for the environmental incidents they cause. In general,
Is risk-neutrality an appropriate assumption for benefit–cost analysis? Why or why not? Does it seem more appropriate for some environmental problems than others? If so, which ones? If you were
Was the executive order issued by President Bush mandating a heavier use of benefit–cost analysis in regulatory rule making a step toward establishing a more rational regulatory structure, or was
Suppose a proposed public policy could result in three possible outcomes:(1) Present value of net benefits of $4,000,000, (2) Present value of net benefits of $1,000,000, or(3) Present value of net
a. Suppose you want to remove ten fish of an exotic species that have illegally been introduced to a lake. You have three possible removal methods.Assume that q1, q2, and q3 are, respectively, the
Consider the role of discount rates in problems involving long time horizons such as climate change. Suppose that a particular emissions abatement strategy would result in a $500 billion reduction in
Certain environmental laws prohibit EPA from considering the costs of meeting various standards when the levels of the standards are set. Is this a good example of “putting first things first”
In Mark A. Cohen, “The Costs and Benefits of Oil Spill Prevention and Enforcement,” Journal of Environmental Economics and Management Vol. 13 (June 1986), an attempt was made to quantify the
In Table 4. 4, Professor Kip Viscusi estimates that the cost per life saved by current government risk-reducing programs ranges from $100,000 for unvented space heaters to $72 billion for a proposed
a. Suppose that hedonic wage studies indicate a willingness to pay $50 per person for a reduction in the risk of a premature death from an environmental hazard of 1/100,000. If the exposed population
The environmental sustainability criterion differs in important ways from both strong and weak sustainability. Environmental sustainability frequently means maintaining a constant physical flow of
In the numerical example given in the text, the inverse demand function for the depletable resource is P = 8 – 0. 4q and the marginal cost of supplying it is $2.(a) If 20 units are to be allocated
Assume the same demand conditions as stated in Problem 1 but let the discount rate be 0. 10 and the marginal cost of extraction be $4. How much would be produced in each period in an efficient
Compare two versions of the two-period depletable resource model that differ only in the treatment of marginal extraction cost. Assume that in the second version the constant marginal extraction cost
a. Consider the general effect of the discount rate on the dynamic efficient allocation of a depletable resource across time. Suppose we have two versions of the two-period model discussed in this
a. Consider the effect of population growth on the allocation on the dynamic efficient allocation of a depletable resource across time. Suppose we have two versions of the two-period model, discussed
One current practice is to calculate the years remaining for a depletable resource by taking the prevailing estimates of current reserves and dividing it by current annual consumption. How useful is
To anticipate subsequent chapters where more complicated renewable resource models are introduced, consider a slight modification of the two-period depletable resource model. Suppose a biological
Consider an increasing marginal-cost depletable resource with no effective substitute.(a) Describe, in general terms, how the marginal user cost for this resource in the earlier time periods would
Many states are now imposing severance taxes on resources being extracted within their borders. In order to understand the effect of these on the allocation of the mineral over time, assume a stable
For the increasing marginal-extraction-cost model of the allocation of a depletable resource, how would the ultimate cumulative amount taken out of the ground be affected by(a) An increase in the
Suppose you wanted to hasten the transition from a depletable fossil fuel to solar energy. Compare the effects of a per-unit tax on the depletable resource to an equivalent per-unit subsidy on solar
Should benefit–cost analysis play the dominant role in deciding the proportion of electric energy to be supplied by nuclear power? Why or why not?
Economist Abba Lerner proposed a tariff on oil imports equal to 100 percent of the import price. This tariff is designed to reduce dependence on foreign sources as well as to discourage OPEC from
Does the fact that the strategic petroleum reserve has never been used to offset shortfalls caused by an embargo mean that the money spent in creating the reserve has been wasted? Why or why not?
During a worldwide recession in 1983, the oil cartel began to lower prices. Why would a recession make the cartel more vulnerable to price cutting? How would the reduced demand be shared between the
Not long ago, a conflict between a paper company and a coalition of environmental groups arose over the potential use of a Maine river for hydroelectric power generation. As one aspect of its case
In the section of this chapter dealing with load management by the utilities, it was mentioned that peaking plants are typically cheap to build (compared to base-load plants), but that they have
If OPEC raised the price of oil high enough, would that be sufficient to promote an efficient energy mix?
Label the following as True, False, or Uncertain and explain your choice. (Uncertain means that it can be either true or false depending upon the circumstances.)a. All members of a resource cartel
Explain why the existence of a renewable energy credit market would lower the compliance costs for utilities forced to meet a renewable portfolio standard.
Using Figure 7. 4, show how the level of oil imports and the price level would be affected if the country represented in that figure acted to internalize national security issues, but ignored climate
Glass bottles can be either recycled (crushed and re-melted) or reused. The market will tend to choose the cheapest path. What factors will tend to affect the relative cost of these options? Is the
Many areas have attempted to increase the amount of recycled waste lubricating oil by requiring service stations to serve as collection centers or by instituting deposit-refund systems. On what
What are the income-distribution consequences of “fashion”? Can the need to be seen driving a new car by the rich be a boon to those with lower incomes who will ultimately purchase a better,
Suppose a product can be produced using virgin ore at a marginal cost given by MC1 = 0. 5q1 and with recycled materials at a marginal cost given by MC2 = 5 + 0. 1q2.(a) If the inverse demand curve
When the government allows private firms to extract minerals offshore or on public lands, two common means of sharing in the profits are bonus bidding and production royalties. The former awards the
“As society’s cost of disposing of trash increases over time, recycling rates should automatically increase as well.” Discuss.
Suppose a town concludes that it costs on average $30.00 per household to manage the disposal of the waste generated by households each year. It is debating two strategies for funding this cost: (1)
What pricing system is used to price the water you use at your college or university? Does this pricing system affect your behavior about water use (length of showers, etc.)? How? Could you recommend
In your hometown what system is used to price the publicly supplied water? Why was that pricing system chosen? Would you recommend an alternative?
Suppose you come from a part of the world that is blessed with abundant water. Demand never comes close to the available amount. Should you be careful about the amount you use or should you simply
Suppose that in a particular area the consumption of water varies tremendously throughout the year, with average household summer use exceeding winter use by a great deal. What effect would this have
Is a flat-rate or flat-fee system more efficient for pricing scarce water? Why?
One major concern about the future is that water scarcity will grow, particularly in arid regions where precipitation levels may be reduced by climate change. Will our institutions provide for an
Water is an essential resource. For that reason moral considerations exert considerable pressure to assure that everyone has access to at least enough water to survive. Yet it appears that equity and
In the United States, a principal responsibility for preserving endangered species (e.g., a pair of endangered birds that chooses to nest on private land)and the costs of exercising that
Air pollution officials in California’s Central Valley have opened a new front in the war against urban sprawl, and regulators and environmental advocates throughout the state are watching closely.
Suppose a city finds that its express highways into the city are congested and it is considering two remedies: (1) imposing a congestion charge on all users of its expressways during the peak periods
With respect to strategies used by land conservation groups to preserve land, conservation easements seem to be expanding more rapidly than buying land for preservation. In what respect might
Suppose a state was trying to decide whether to fund primary and secondary education with a property tax or an income tax. What implications might this choice have for land use in the state?
Changing preferences can also affect changes in land use. In the United States, the proportion of the population in the 65-and-older age bracket is growing. What effects might this have on the
In the United States, the production of ethanol fuel from corn is subsidized. Use bid rent function analysis to suggest what effects this subsidy might be expected to have on land use.
Increasingly sophisticated communications technology is allowing more people to work at home. What effect do you think this might have on land-use patterns, specifically the density of residential
“By applying modern technology to agriculture, the United States has become the most productive food-producing nation in the world. The secret to solving the world food security problem lies in

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