Final Exam Study Guide for Economics 322

Chapters 5, 6, 7, 12, 13, & 14 and bits from chs. 17 & 21  

 Terms

1.      marginal user cost

2.      efficient allocation

3.      efficient intertemporal allocation

4.      intertemporal fairness or intergenerational fairness

5.      Rawls A Theory of Justice

6.      Difference Principle (what’s best for the least well off)

7.      Decisions made “behind a veil of ignornace”

8.      Hartwick’s rule

9.      Weak Sustainability

10.  Strong Sustainability

11.  Environmental Sustainability

12.  population growth rate = birthrate-death rate + immigration rate - emigration rate

13.  fertility rate replacement rate (with populations)

14.  stationary population

15.  output per capita

16.  age structure effect, youth effect, retirement effect, female availability effect

17.  theory of demographic transition

18.  supply and demand for children (and factors affecting each)

19.  marketable birth rights

20.  current reserves, potential reserves, and resource endowment

21.  depletable resource

22.  recyclable resource

23.  renewable resource

24.  efficient allocations (extraction rate) of depletable resources

25.  marginal user costs and marginal extraction costs

26.  efficient wildlife harvests

27.  sustainable yield, maximum sustainable yield, minimum viable population

28.  natural equilibrium

29.  carrying capacity

30.  static efficient sustained yield, dynamic efficient sustained yield

31.  contemporaneous externality

32.  intergenerational externality

33.  individual transferable quotas

34.  transfer costs and real-resource costs

35.  by-catch

36.  absorptive capacity

37.  stock pollutants

38.  fund pollutants

39.  zone of influence

40.  local, regional and global pollutants

41.  surface pollutants

42.  command-and-control policies

43.  emission charge policies

44.  transferable emission permits policies

45.  marginal cost rule for cost effective regulation of pollution (p. 251)

46.  criteria pollutants

47.  ambient air quality standards, primary and secondary

48.  State implementation plans (SIPs)

49.  Nonattainment regions

50.  LAER, BACT, PSD, NSPS

51.  Class I, II and III regions

52.  Noncompliance penalties

53.  Emissions Reduction Credits (ERC), offset policy, bubble policy, netting, and banking

54.  hazardous pollutants

55.  BAT

56.  progressive, proportional and regressive taxes (or regulations)

57.  incidence of regulation

 Study Questions

  1. What are the externalities with increasing the population?
  2. What is the basic relationship between the population of a species and the growth rate of that population? How does this affect the benefits of fishing effort?
  3. Why does fishing effort extend to the level where there are no net benefits of fishing (P=AC, profits = 0)? Why would a monopolist only extend fishing effort until the dynamic efficient yield? What are the two externality problems associated with fishing?
  4. Why is the maximum sustained yield inefficient? Why is barring more efficient fishing methods inefficient?
  5. Is a total ban on whaling efficient?
  6. What role does speculation play in the allocation of depletable resources over time?
  7. What is the effect of sizable externalities (pollution) from either the consumption or extraction/production of a depletable resource on the divergence of the market allocation of the resource over time and the efficient allocation over time? 
  8. The dynamically efficient yield of fish can be achieved by raising the costs of fishing, either by outlawing efficient technologies or by imposing taxes. Why is the technology regulation approach not efficient in any case? Why does the tax method give us social efficiency even though fishermen get no gains from trade?
  9. How do individual-transferable quotas work? Do they deal with the intergenerational externality? How?
  10. How does a fishing monopoly right deal with both the contemporaneous and intergenerational externalities with fishing? What about the by-catch and high-grading problems?  
  11. Describe and explain the market allocation of pollution.
  12. Describe and explain the efficient allocation of pollution.
  13. Why do emission charge policies and transferable emission policies lead to cost-effective allocations of pollution reduction, while command-and-control policies are not likely to lead to cost-effective allocations of pollution reduction? What are five sources of deviation from cost effectiveness with our command-and-control policies for air pollution reduction? Explain each of these reasons.
  14. What are four reasons that emission charges and transferable emission permits differ in their efficiency? Show three of them graphically.
  15. How cost effective is our ERC trading program? What are 2 areas of concern as to the efficiency of this program? Explain each.
  16. How have tradable emission allowances facilitated achieving the environmental goal at a lower cost?
  17. How can environmentalists buy pollution?  Why would they want to?
  18. Why must there be assurances to all participants that the ERCs created under an arrangement of global trading of greenhouse gas emission reduction must be permanent, surplus, quantifiable and enforceable?
  19. With toxic pollutants, why there is no externality problem with occupational or consumer hazards. What problem does lack of information pose? What incentive is there for those with the information (employer/producer) to share it?
  20. What is the role of enforcement costs in comparing different forms of environmental control?
  21. How can the costs of pollution control be passed forward to the consumer? What happens in a competitive market? How does the elasticity of demand affect the extent to which the costs are borne by workers? What scale effects must be taken into account? What is the new-source bias?
  22. To what extent does the incidence of pollution control costs fall on landowners in an area in the long run?
  23. What is the incidence of pollution control costs in a monopolistic market?
  24. How can less stringent policy accomplish more? Explain this with the example of the Zero Discharge Goal of our water pollution laws.  See pages 347-48.

For a reasonably good review of basic ideas over the term, see the sections of chapter 21, “Sustainability and Development,” pp. 435-442 & “Restructuring Incentives,” pp. 450-56.

Also, read the article at URL:  http://www.observer.co.uk/international/story/0,6903,750783,00.html

 & be ready to criticize the article.

 

 

 

 

Study Questions

 

  1. What externalities are there with increasing the population?

 

  1. What is the basic relationship between the population of a species and the growth rate of that population? How does this affect the benefits of fishing effort?
  2. Why does fishing effort extend to the level where there are no net benefits of fishing (P=AC, profits = 0)? Why would a monopolist only extend fishing effort until the dynamic efficient yield? What are the two externality problems associated with fishing?
  3. Why is the maximum sustained yield inefficient? Why does barring more efficient fishing methods inefficient?
  4. Is a total ban on whaling efficient?
  5. What role does speculation play in the allocation of depletable resources over time?
  6. What is the effect of sizable externalities (pollution) from either the consumption or extraction/production of a depletable resource on the divergence of the market allocation of the resource over time and the efficient allocation over time?
  7. What are the effects of price controls on oil and gas markets? How do price controls affect marginal user costs?
  8. What is the "law of capture" with regard to oil and gas? How could this have led to over-consumption of oil and gas?
  9. The "law of capture" also affected wildlife. How can such a legal rule affect the consumption of valuable game and commercial species?

 

  1. How has the OPEC cartel diverted the consumption rate away from the dynamically efficient rate? What are the factors that affect a cartel's ability to raise prices? How?
  2. What are the problems with our two major transition fuels, coal and nuclear power? Be sure to go over the problems of risk with nuclear power and the problems with the Price-Anderson Act.
  3. How does peak-load pricing work? How does it conserve resources?
  4. The dynamically efficient yield of fish can be achieved by raising the costs of fishing, either by outlawing efficient technologies or by imposing taxes. Why is the technology regulation approach not efficient in any case? Why does the tax method give us social efficiency even though fishermen get no gains from trade?
  5. How do individual transferable quotas work? Do they deal with the intergenerational externality? How?
  6. How does a fishing monopoly right deal with both the contemporaneous and intergenerational externalities with fishing? What about the by-catch and high-grading problems?