Download Final Exam Study Guide for Environmental Economics | ECON 231 and more Exams Economics in PDF only on Docsity!
FINAL EXAM: STUDY GUIDE AND LIST OF QUESTIONS
The final will be a two hour exam (About 1 1/2 times the size of the first midterm). I will give more time if needed so you won’t feel time-constrained; HOWEVER, I WILL take points off for obvious digressions or answers not directly answering the question or explaining an argument that answers the question. There will be 3 types of questions:
1/Exercise type questions as in the problem sets and the midterm. In order to study for these questions, just go over your problem sets (problem set answer keys) and the midterm. If you are able to redo the exercises from a blank page and UNDERSTAND the questions and the answers so you could put it in your own words and explain them to someone else, you should be fine. Just know that I will most probably combine some questions, rephrase them, change numbers, etc.
2/Questions on the debates: When writing the exam, I will RANDOMLY select 1 of the 3 debates. However, you cannot answer a question about a debate in which you directly participated so I will flip a coin for which of the other 2 debates will be addressed by the 4 students concerned. The debate questions will be answered in 2 or 3 paragraphs. You will have one full page to present the debate arguments. Your presentation should be concise, well organized, and to the point.
3/ Short answer questions will be directly taken from the list below and there will be no options. This list includes 18 questions that were assigned for the first midterm. The answers to these questions also need to be concise and to the point so make sure you identify the point BEFORE you start writing. One good way to identify the point is to ask yourself why I chose this question.. I will expect you to use material covered in class and the readings, focusing on points directly related to economics. These are short answers so a few sentences (a short paragraph) should be enough to answer them.
QUESTIONS FOR DEBATES:
In your answers, draw on material presented by your classmates in the debate.
QUESTION FOR DEBATE 1: Why do firms voluntary participate in programs to reduce their environmental impact beyond what is required by law. Identify 3 good reasons why they would do so. Can we rely on firms doing this in the future? Please, focus on the main/strongest arguments.
QUESTION FOR DEBATE 2: Recycling is often considered the least environmentally damaging way to manage the waste we produce. Our class debate highlighted some facts and logical arguments that qualified this assertion. First highlight the main reason(s) why recycling is considered a good thing and second, identify 3 reasons why recycling may not be as good a strategy as it sounds at first. Is it likely that we will rely more heavily on recycling in the future? Why or why not?
QUESTION FOR DEBATE 3: Should we strive to limit population growth if we want to save our global environment and natural resource base? What would you have said before you heard the debate and what would you say now? Identify the strongest argument(s) on each side of the debate.
SHORT ANSWER QUESTIONS
1/ Questions from the midterm study guide
1. One of the “myths” highlighted by Fullerton and Stavins is that “Economists believe that the market solves
all problems”. Would economists rely on the “invisible hand” of the market (i.e. let the market take care of itself) in order to reach efficient outcomes in markets when the environment is adversely impacted? Explain.
2. “The efficient amount of pollution is no pollution at all”. Comment using economics and a simple example.
Use a graph to illustrate your argument.
3. A Lindhal tax is known in economics as a tax on each individual equal to their marginal willingness to pay
for a public good. Why do we not have Lindhal taxes in practice (one sentence)?
4. What is considered a common pool resource? Briefly identify the source of the Tragedy of the Commons
and explain why Garrett Hardin believes there is no “technical solution” to it.
5. Give four criteria that economists will use to evaluate and compare the merits of different environmental
policies. Briefly explain each. Give an example where two criteria can be enhanced simultaneously and one example when improving outcomes on one level will hurt performance on another.
6. According to Coase himself (and as Ruffin points out), what is the main message Coase wanted to convey
in “The problem of Social Cost” about how we should approach the problem of externalities?
7. Explain the concept of reciprocity in damage highlighted by Coase. Illustrate your answer with an
example. Taking account of this concept, would you still argue in favor “polluter-pay” principle in environmental policy.
8. Could a Coase bargaining solution work in the case of a global externality like the emission of pollutants
that cause ozone depletion or global warming? Explain why or why not. Be as specific as possible.
9. Use economic theory to explain why environmental damage due to the production of a good by a (single
price) monopolist will be less than if the good were produced under perfect competition. How would the monopoly result compare to Pigovian tax? To a pollution tax?
10. Compare a Pigovian tax (on production) to a pollution tax. On what basis for policy evaluation are
pollution taxes preferred.
11. In what sense is a pollution tax and a subsidy to abate equivalent. Give two reasons why a subsidy,
although politically easier to adopt may not be as good as a tax in a long- term pollution reduction strategy.
12. In what sense is a deposit system both tax and a subsidy? How would you justify a refund greater than the
deposit?
13. Give a specific example of a voluntary permit trading scheme currently in practice. Compare expected
results in mandatory versus voluntary tradable permit schemes. Do you expect trading price to be lower or higher in a voluntary scheme. Why? Could the two coexist in these circumstances? (needs a little thinking here, with the help of the CESifo articles)
14. Some people argue that a cap and trade (permit) system is not as good as a tax system because it does not
follow the “polluters pay principle”. Is this a fact that a firm who decides to retain permits so it is allowed to pollute is not incurring a cost? Explain
15. In what instance would we want to restrict firms to only be allowed to trade permits within a restricted
geographical area? Using the case of air quality give one example where regional restrictions should be applied and one example where regional restrictions should not be applied.
32. Briefly discuss the implications of using a discount rate equal to zero in benefit cost analysis. Would
sustainability require the use of a zero discount rate in the valuation of policy options? Explain briefly using the idea of substitutability
33. Deciding on the right discount rate to use in calculations of future benefits and costs is a controversial
issue. How can the use of a high discount rate hurt future generations? How can the use of a low discount rate hurt future generations?
34. One condition for sustainability to be compatible with the use of natural resources beyond sustainable
yields is that the elasticity of substitution between natural capital and manufactured capital be equal or greater than one. Explain clearly what the condition means.
35. What is the Environmental Kuztnet’s curve hypothesis (EKC)? Draw a graph that illustrates your answer
(make sure you identify the axes properly). What do you think is the main problem with this hypothesis, EVEN IF there is empirical evidence to support it? Explain clearly
36. EKCs are mostly empirically observed but economists have attempted to explain its shape using economic
theory. What are the main theoretical assumptions necessary to explain the conventional shape of EKCs using economic analysis.
37. Explain 2 reasons why the EKC might become flatter and reach its maximum at lower income per capita
levels as more countries have passed their turning points.
38. There are 2 reasons why concentrations of pollutants would not decrease after the conventional income per
capita turning point. What are they? On a graph, draw the anticipated shape of these curves compared to the conventional EKC and explain their shape. (See Figure # 1 in Dagupta et al. JEP 2002 article assigned).
39. [Shogren’s capstone article] Many non-economist environmentalists say that energy efficient technologies
can be put in place at no net cost and possibly a net benefit so energy saving investments should be a no- brainer for firms and individuals. Why are economists skeptical of this argument?
40. [Shogren’s capstone article] What is the main contribution of economics to the discourse on environmental
protection? We understand that the science is crucial in understanding the effect of our actions on the environment but can science without economics inform us about the future of a planet where humans make decisions that affect the environment? Discuss (in one short paragraph)
