Economics 308Fall 2016MIDTERM EXAM STUDY GUIDEThe midterm exam will have 100 points: 5 short-answer questions (10 points...

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Economics 308 Midterm exam - What are the source functions

April 14, 2018

Economics 308
Fall 2016
MIDTERM EXAM STUDY GUIDE
The midterm exam will have 100 points: 5 short-answer questions (10 points each) and 2 essay
questions (25 points each). Most of the questions on the exam (approximately 90%) will be
drawn from this study guide.

I. Short answers
1. What are the source functions and sink functions of “natural capital”? Give two examples of
each.
2. How do neoclassical economists define the “optimal level of pollution”? What type of power
enters into this definition, and how? [Here and throughout the exam, when you use diagrams, be
sure to label clearly all curves and axes.]
3. What is a positive externality? Give an example.
4. What is a negative externality? Give an example.
5. List and define five types of power that may influence social decisions on environmental
protection.
6. If negative externalities in the production of paper are internalized – so that firms are forced
to pay the full social costs of production – what will happen to the market price of paper and to
the quantity sold? Draw a supply-and-demand diagram to depict the changes. [Again, label
clearly all curves and both axes.]
7. What is the “free rider problem”?
8. What is the “Coase theorem”? Use a diagram to explain it. [Again, be sure to label clearly all
curves and axes.]
9. What is the difference between cost effectiveness in implementing a safety-based
environmental standard and efficiency as the basis of setting the standard?
10. What is the difference between ‘weak sustainability’ and ‘strong sustainability’?
11. What is the precautionary principle as applied to natural resource conservation (also known
as the ‘Daly rule’)?
12. What is a discount rate? Give an example of how the choice of the discount rate could affect
the outcome of a cost-benefit analysis. [NB: Here and throughout the exam, if you use a

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mathematical formula, be sure to define all the symbols.]
13. What is “net present value”? [NB: Here and throughout the exam, if you use a formula, be
sure to define all the symbols.]
14. Why and how does willingness-to-pay differ from willingness-to-accept as a basis assigning
dollar values to the impacts of pollution? Give an example.
15. What is contingent valuation? Give an example.
16. What is the travel-cost method for measuring benefits? Give an example.
17. What is hedonic regression? Give an example.
18. How does the power-weighted social decision rule (PWSDR) differ from the cost-benefit
analysis (CBA) rule?
19. What two hypotheses follow from the PWSDR?
20. What is the siting versus move-in debate in environmental justice?
21. What is the Toxics Release Inventory, and what event led to its creation?
22. What does the Executive Order on environmental justice issued by President Clinton in 1994
require?
23. What is the difference between proximity to hazards and exposure to hazards, and why could
this matter in analyzing environmental justice?
24. What are the US Environmental Protection Agency's Risk-Screening Environmental
Indicators?
II. Essay questions (Your answers should consist of several paragraphs each, and should
display familiarity with the readings for the course and the concepts discussed in class.)
1. Consider two scenarios: In scenario A, the public must pay firms not to pollute the air; in
scenario B, the firms must pay the public to be allowed to pollute the air. Will the amount of air
pollution differ between these two scenarios? If so, why?
2. What are the main methods by which economists value costs and benefits for which market
prices do not exist, and what are the main limitations of these methods?
3. What are the key differences among (i) efficiency, (ii) safety, (iii) sustainability and (iv)

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justice as criteria for determining environmental policy goals?
4. How do “neoclassical” and “ecological” economists differ in their views on sustainability?
5. How can sustainability be translated into a measurable goal for policy making? What are the
pro's and con's of alternative options?
6. Are there environmental limits to economic growth?
7. Does benefit-cost analysis provide a satisfactory ethical basis for social decisions on
environmental protection? What do you regard as its main strengths and weaknesses?
8. What are the main methods by which economists seek to measure the "value of a statistical
life" for the purposes of benefit-cost analysis? How do they differ from each other, and what do
they have in common?
9. How do various forms of power affect government policies on environmental protection?
Give examples.
10. How do environmental burdens across demographic groups in the United States, and how can
we explain systematic disparities?










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