MAF 502

Prof. Letson

Exam I: October 4, 2005 Name_____________________________

Please answer each question. Four questions. 25 points each.

1) What are consumer surplus and producer surplus and how are these concepts used to evaluate natural resource management and policy alternatives? Discuss how the concepts of consumer surplus and producer surplus might be used to evaluate the efficiency of a fisheries management plan or, if you prefer, a water quality management plan. As part of your discussion, define “supply” and “demand”, and show or describe how they influence consumer surplus and producer surplus.

(2) Define discounting. What two fundamental reasons, based in economic theory, have we discussed for discounting? Explain the relationship between the discount rate and natural resource usage. What reason does Tim Brennan give for the controversy surrounding discounting?

(3) Describe the “circular economy”, referring to the figure below. What different types of services do natural resources provide? What are the important physical constraints on materials use? Who was Kenneth Boulding?

(4) Discuss the inverted-U hypothesis. Why might richer nations be cleaner? Why not? Is there a reliable empirical relationship between a nation’s per capita income and its environmental quality? Explain the implications of the inverted-U hypothesis for environmental and economic policy.

MAF 502

Prof. Letson

Exam II: December 13, 2005 Name_____________________________

Please answer each question. Four questions. 25 points each.

(1) Explain Hotelling’s Rule for the intertemporal allocation of exhaustible resources. Why is this Rule a market equilibrium condition? Be sure to mention the two alternative ways an owner can use a resource. How could you use Hotelling’s Rule to explain the decades long decline in real prices of many minerals? (Recall the bet that Paul Ehrlich lost to Julian Simon.)

(2) Explain how an effluent tax can improve efficiency. Your answer should discuss both the level of externality and the possibility of substituting effluent taxes for other types of taxes. Why are effluent taxes rarely used? Who was Arthur Pigou?

(3) What is the contingent valuation method (CV)? Explain the “embedding” and “external validation” criticisms offered of CV. What two federal laws have enhanced interest in CV by specifically calling for natural resource damage assessments?

(4) What economic defense exists for investing resources in protection against the possible effects of global climate change? Your answer should discuss the potential economic costs of global climate change, as well as the costs of preventing or postponing its onset. You should also include should include a discussion of “no regrets” options. What is joint implementation and what might it be economically desirable? Explain why protective action is a global public good and why many nations have an incentive to free ride on the protective efforts of others.