EC4650/5650 Short Answer Questions
Each question is worth 8.33 points
1. List Rosenberg’s six optimistic “innovations” to increase the sustainability of natural resource use. For each one, provide an example and briefly explain how it has made society better off. Finally, in a democratic society, what steps could be taken to promote people to pursue innovations and improve resource use? SOCIAL RESPONSIBILITY 8.2
2. In about 50 words, explain why some people believe that placing anthropocentric economic (i.e., monetary) values on the environment is unethical. Then in about 50 words, explain why economic valuation including benefit-cost analysis is sometimes essential, apart from ethical concerns. ETHICAL REASONING 8.4
3. Suppose Congress passes a law requiring an industry to reduce its pollution by ten (10) units. In this industry, there are two factories (i.e., two different firms) with different pollution abatement equipment and technology. The total- cost-of-abatement functions of the two firms are below. What is the efficient amount of pollution abated for Firm 1 and for Firm 2, assuming that the industry complies with Congress? Show all mathematical steps and relationships for full credit.
TC1 = 48 + 24(q1)2
TC2 = 10 + 28(q2)2
where q1 and q2 are the amounts of pollution abated by Firm 1 and Firm 2 respectively. Now assume that pollution abatement is done by selling tradable emissions permits, which will reduce total pollution by ten units as planned. What is the equilibrium market price of one permit? [Hint: what is each firm’s willingness to pay for a permit in equilibrium?]
4. Develop a simple 2-period model of resource consumption with a fixed resource base that includes the possibility of altruism (i.e., using resources sustainably for future generations). Be sure to define all variables used in the model. Explain how discounting affects the allocation of consumption in both periods. From an ethical perspective, how does altruism relate to sustainability? In a democratic society, what measures could be taken to promote altruism? SOCIAL RESPONSIBILITY 8.2 AND ETHICAL REASONING 8.4
5. You are a natural resource manager with the task of maximizing dynamic efficiency in the use of a non-renewable resource q over two periods (now and the future). Assume that the marginal net benefits of the resource in period t are equal to the following: MNBt = 10 – 0.5qt and the discount rate is 5%. Assume that 18 units of q are available at the beginning of period 1. To maximize total net benefits of using the resource, how much q will be used in the first period and the second period?What will be the market price for q in periods 1 and 2?
6. If sea ice melts, how does that not only increase but accelerate global warming? At current CO2 emission rates, how will CO2 levels in the earth’s upper atmosphere in the year 2050 compare with historic CO2 levels of the last 650,000 years? Why do you think society is so polarized about climate modification, with many still insisting that it is not occurring? SOCIAL RESPONSIBILITY 8.2
7. Using a pollution taxonomy based on Knesse (1971), explain the difference between degradable pollutants and persistent pollutants. Give one example of each kind, and state whether it primarily results in water pollution or air pollution. Next, explain why some pollution has local effects and other pollution has regional/global effects.
8. Tradable permits are generally thought to be more efficient than taxes (i.e., charges), and charges more efficient than command-and-control in reducing pollution. Explain why some politicians prefer command-and-control over tradable emissions permits to reduce pollution. Then explain why polluters tend to prefer command-and-control over charges. Where relevant, be sure to include considerations of whether policy preferences are based on ethical behavior, or violate ethical behavior. ETHICAL REASONING 8.4
9. Suppose you are the manager of a fishery. Your goal is to maximize efficient use of the resource.
- Graph the biological relationship between the stock of fish and its growth rate
- Explain why the harvest rate has to be < the growth rate for sustainability
- Graph the economic relationship between level of harvesting effort, benefits, and costs
- Show the maximum-sustainable-yield (MSY) stock size and harvest rate on your first graph
- Explain using words why the economically efficient (i.e., profit-maximizing) harvest rate (and level of “effort” expended to catch fish) is less than the MSY levels and show the economically efficient level of effort on your second graph
10. Now assume the total cost of fishing effort is determined by the function TC(e) = 1.5e, and the total revenue of fishing effort is given by the function TR(e) = 7e – 0.5e2. If the fishery is a common property resource, what will be the level of effort (eCPR) and profit? If the fishery is managed efficiently, what will be the level of effort (e*) and profit?
11. Why is it so hard to balance environmental efficiency with social equity? Explain first using economic theory and then describe one real-life example in detail. Be sure to define efficiency and equity as these concepts apply to society in your answer. If you were an environmental policymaker, and a program was found to be extremely cost-effective and economically efficient but profoundly inequitable, how would you use ethical arguments to make the program more fair? ETHICAL REASONING 8.4
12. Describe a real-life market failure related to an absence of property rights. To correct this market failure, propose a public environmental policy that could be used in the future, and how the distribution of benefits or losses across the affected citizenry would change if your policy were put into action. Finally, is there an operational opportunity through a democratic process for compromise to lead to a more equitable distribution of benefits and costs across the diverse communities? SOCIAL RESPONSIBILITY 8.2