Quiz 2 2014 - 1 (Pauta)

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Name:_____________________ 
 
Pontificia Universidad Católica de Chile 
Ciencias Económicas y Administrativas 
Instituto de Economía 
 
EAE 295 
 
ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS 
 
 
Quiz 2 
 
Multiple Choice Questions (5 pts each) 
1. Costs imposed on future users of a resource are called 
1) Transactions costs 
2) Social costs 
3) Private costs 
4) Depletion costs 
5) User costs 
 
2. An economist estimates the value of a nature preserve by calculating the price premium 
people pay for houses located adjacent to the preserve. This is an example of what type of 
economic valuation? 
1) Hedonic pricing 
2) Production function valuation 
3) Contingent valuation 
4) Travel cost method 
5) Engineering cost valuation 
 
3. A wildlife preserve provides what type of economic benefits? 
1) Use values only 
2) Non-use values only 
3) Existence values only 
4) Direct and indirect use values only 
5) Both use and non-use values 
 
Name:_____________________ 
 
 
4. The socially optimal provision of a public good can be obtained by ... 
a) Privatizing the good 
b) Vertically adding the demand curves for the good 
c) Horizontally adding the demand curves for the good 
d) Eliminating access to the good 
e) Allowing open access to the good 
 
5. Suppose the pure rate of time preference is 1%, the growth rate of consumption per capita is 
3%, and the elasticity of the marginal utility of consumption is 2. This suggests a value for 
the social rate of time preference of 
1) 2% 
2) 4% 
3) 5% 
4) 7% 
5) 9% 
 
6. Which one of the following techniques is an example of supply-side economic valuation? 
1) Contingent valuation 
2) Hedonic pricing 
3) Travel cost method 
4) Avoided cost valuation 
5) Cost-effectiveness valuation 
 
7. How do we adjust a current-period market graph to incorporate user costs? 
1) Subtract the user costs from the supply curve 
2) Add the user costs to the supply curve 
3) Subtract the user costs from the demand curve 
4) Add the user costs to the demand curve 
5) Add the user costs to both the supply curve and the demand curve 
 
 
Name:_____________________ 
 
 
8. The precautionary principle is most likely to be applied when some impacts. 
1) Involve option values 
2) Are irreversible 
3) Are converted to present values 
4) Are estimated using the avoided cost approach 
5) Involve indirect use values 
 
9. Which one of the following statements is false? 
1) Bequest value is the value of environmental services to future generations 
2) Willingness-to-pay tends to be smaller than willingness-to-accept for the same 
service 
3) The production function approach to valuation considers the cost of constructing 
facilities to provide environmental services 
4) Contingent valuation can be used to estimate existence values 
5) The value of just knowing a wild species exists is called indirect use value 
 
10. Which one of the following statements is true? 
1) All projects that provide positive net benefits should be approved 
2) Cost-effectiveness analysis determines the best policy to achieve a given end 
3) All projects with a benefit/cost ratio of less than one should be approved 
4) Positional analysis determines the single proposal that provides the greatest net 
benefits 
5) Cost-benefit analysis always provides estimates for all costs and benefits associated 
with a project 
 
11. In a two-period model, the same quantity of a resource will be used in both time periods ... 
1) Whenever the discount rate is set equal to the rate price is increasing 
2) Whenever the discount rate is zero and the marginal net benefit curves are equal 
3) Whenever the discount rate is zero 
4) Whenever the supply constraint is binding 
5) Whenever Hotelling’s rule applies 
 
Name:_____________________ 
 
 
12. In contrast to the basic Limits to Growth model, the “sustainable world” model shows: 
a) Higher global population and lower world food supply 
b) Global population and pollution would both be higher 
c) Global population would be lower but resources would be scarcer 
d) Global population would be lower but food supply would be higher 
e) Global population and industrial output would be lower 
 
13. A characteristic of public goods is that use of the good by one person does not reduce its 
availability to others. The term for this characteristic is... 
1) Non-exclusive 
2) Transferable 
3) Non-rival 
4) Perfectly elastic 
5) Free-rider 
 
14. Suppose a legislature passes a law that mandates a 50% cut in toxic emissions. What 
type of analysis would most likely be used to determine how to implement this policy at the 
lowest cost? 
1) Contingent valuation 
2) Cost-effectiveness analysis 
3) Positional analysis 
4) Precautionary principle 
5) Safe minimum standard 
 
15. A decision to postpone commercial development of an undisturbed parcel shows an 
example of what type of economic benefits? 
1) Direct use values 
2) Indirect use values 
3) Existence values 
4) Option values 
5) Bequest values 
 
Name:_____________________ 
 
16. If we are trying to maximize economic efficiency, which one of the following 
statements is true? 
1) Reducing current consumption to save some resources for the future may be optimal 
2) Maximizing current consumption is optimal 
3) Consumption should always be divided equally among time periods 
4) Consumption rates should rise at a rate equal to the rate of interest 
5) Consumption rates in a time period are not related to interest rates 
 
17. Under which one of the following conditions will economic theory indicate that a 
resource should be consumed in the current period? 
1) When the discount rate is positive 
2) When the marginal net benefits in the current period are greater than the marginal 
net benefits in the future 
3) When substitute resources are available 
4) When the marginal net benefits in the future are not discounted 
5) When the users costs are positive 
 
18. If people are risk averse regarding environmental damages... 
1) Low discount rates should be used 
2) High discount rates should be used 
3) Expected values will understate ecological damages 
4) Irreversible actions should be taken 
5) Contingent valuation responses will not be valid 
 
19. Which one of the following valuation techniques is not based on the value of marketed 
goods or services? 
1) Hedonic pricing 
2) Avoided cost valuation 
3) Production function valuation 
4) Contingent valuation 
5) Engineering cost valuation 
 
Name:_____________________ 
 
 
20. Which one of the following statements is true? 
1) Discount rates should always be set to zero to maximize efficiency 
2) Discount rates should be constant over time 
3) The use of discount rates will always maximize future benefits 
4) The use of discount rates becomes more problematic as longer time periods are 
considered 
5) High discount rates promote resource conservation 
 
21. User costs will be incorporated into a market if 
 
1) Interest rates are positive 
2) Discount rates are zero 
3) Resource owners foresee future shortages 
4) Government intervention is eliminated 
5) Discount rates are positive 
 
22. Which one of the following statements is true? 
1) All projects that provide positive net benefits should be approved 
2) Cost-effectiveness analysis determines the best policy to achieve a given end 
3) All projects with a benefit/cost ratio of less than one should be approved 
4) Positional analysis determines the single proposal that provides the greatest net 
benefits 
5) Cost-benefit analysis always provides estimates for all costs and benefits associated 
with a project 
 
23. A local forest provides habitat for deer that are harvested by hunters.The hunters 
receive what type of benefit in this case? 
1) Direct use value 
2) Indirect use value 
3) Option value 
4) Bequest value 
5) Existence value 
 
Name:_____________________ 
 
24. Asking people to indicate their economic values in a survey is an example of what type 
of economic valuation? 
1) Travel cost method 
2) Contingent valuation 
3) Hedonic pricing 
4) Production function valuation 
5) Avoided cost valuation