ECON 111 A01 1
UNIVERSITY OF VICTORIA SECOND PRACTICE FINAL EXAM April 2017 Last Name: _____________________ First Name: _____________________ STUDENT NUMBER: V00______________ Course Name & No. Section(s) CRN: Instructor: Duration: The Economy & the Environment Economics 111 A01 10956 Peter Kennedy 2 hours This exam has a total of _18 pages including this cover page and 0 separate handouts. Students must count the number of pages and report any discrepancy immediately to the Invigilator. This exam is to be answered: o On the paper o In Booklets provided X NCS Answer sheets Marking Scheme: All questions have equal weight Materials allowed: Calculator (not a smart phone) ECON 111 A01 2
1. The current state of the natural system reflects
A. a stable balance achieved after thousands of years of fluctuation
B. the disturbance caused by external forces, including human activity
C. a snapshot of a long-term dynamic process
D. None of the above
2. A chaotic system exhibits stochastic behavior.
A. True
B. False
3. In economics the essential benchmark by which environmental impacts are judged is:
A. do they cause harm to future generations of humans?
B. do they disrupt the balance of the natural system?
C. do they reduce the value of economic output?
D. None of the above
4. One of the reasons economists focus on wants rather than needs as the basis for judging how
natural capital should be utilized is because
A. this approach is consistent with liberal democratic traditions
B. wants are universal while needs vary depending on physical conditions (like weather)
C. needs cannot be measured in dollar terms
D. wants are unlimited and therefore generate more economic growth to satisfy them
5. Consider the chemical equation
+
CH 4 + 2O 2 → CO 2 + 2 H 2 O
This equation
A. represents the combustion of natural gas
B. illustrates how economic activity causes environmental impacts
C. is an example of the link between fossil fuels and climate change
D. All of the above.
6. Photosynthesis is a process through which carbon dioxide is removed from the atmosphere.
A. True
B. False
7. The limits of natural capital must put a limit on the growth of consumption services.
A. True
B. False
ECON 111 A01 3
8. Methylmercury contamination in fish arises because
A. fishing tackle uses mercury-based alloys like brass and pewter
B. most mercury pollution is discharged directly into water
C. methylmercury does not dissolve in water
D. None of the above.
9. Variation in the strictness of environmental regulations across countries is due primarily to
differences in
A. geophysical characteristics such as forest coverage, wind patterns and topography
B. human culture
C. wealth
D. All of the above
10. Trade liberalization can cause significant shifts in environmental impacts
A. due to the affect on production and consumption patterns
B. because trade always causes a “race to the bottom” in environmental policy
C. because trade leads to more manufacturing activity in all countries
D. All of the above.
11. Economic capital is more important than natural capital in terms of growth in living standards
because natural capital is strictly limited while economic capital is not.
A. True
B. False
12. Primary production
A. refers to economic activities that are basic to human survival
B. includes activities like forestry and agriculture
C. uses natural capital less intensively than other sectors of the economy
D. refers to economic activity that causes the least environmental damage
13. Anthropogenic eutrification of lakes and streams is primarily due to elevated biological
oxygen demand.
A. True
B. False
14. A uniformly mixed pollutant is one whose damage is the same across all areas in the affected
region.
A. True
B. False
ECON 111 A01 4
15. A non-uniformly mixed pollutant is
A. one that builds up in the environment over time
B. one whose damaging effect is relatively short-lived
C. one that tends to pool in areas of relatively high concentration
D. one that does not mix with air or water
16. Which of the following is not a cumulative pollutant?
A. Carbon dioxide
B. CFCs
C. VOCs
D. Methane
17. There are two primary sources of energy:
A. nuclear fission and nuclear fusion
B. nuclear fusion and solar energy
C. fossil fuels and electricity
D. None of the above.
18. A reduction in carbon dioxide emissions by Canada will yield an immediate slowing of
climate change because
A. our reductions will induce other countries to reduce their own emissions
B. carbon dioxide is a uniformly mixed pollutant
C. Canada is one of the highest per capita emitters in the world
D. None of the above
19. Greenhouse gas emissions from Canada are currently about 7% of the global total.
A. True
B. False
20. One of the biggest threats from climate change is a sea-level rise due to melting sea ice.
A. True
B. False
21. If climate change causes the Gulf Stream to shut down then
A. north-western Europe would become warmer
B. north-western Europe would become cooler
C. north-eastern North America would become cooler
D. None of the above
ECON 111 A01 5
22. The adverse impacts of climate change are likely to be borne most heavily by
A. rich countries because they have more to lose
B. rich countries because they emit most of the carbon dioxide
C. poor countries because they rely more heavily on agriculture
D. poor countries because they have fewer forests to absorb carbon dioxide
23. The energy intensity of economic activity measures
A. the ratio of energy use to GDP
B. the ratio of GDP to energy use
C. the dollar cost of energy use per dollar of GDP
D. None of the above
24. Geosequestration refers to
A. the release of carbon dioxide from melting Arctic permafrost
B. the capture of carbon dioxide in underground cavities
C. the absorption of heat by the surface of the earth
D. the impact of the earth’s rotation on ocean currents
25. Exports are goods and services that flow into the domestic economy from other countries.
A. True
B. False
26. The benefits of trade stem at least partly from
A. the direct exchange of economic capital
B. specialization in production
C. the exploitation of economies of scale
D. All of the above
27. Economies of scale derive from
A. the existence of fixed costs
B. the physical characteristics of production processes
C. learning-by-doing over time
D. All of the above
28. Trade allows the exploitation of economies of scale and scope because
A. large global firms are more able to produce at volumes where unit costs are lower
B. trade makes countries wealthier
C. consumers have greater access to goods and services
D. trade rules protect intellectual property rights and thereby encourage investment
ECON 111 A01 6
29. Consider Table 1. It provides labour productivity data for two countries. Based on this data,
A. country B has a comparative advantage in the production of good 1
B. country A has a comparative advantage in the production of good 1
C. country A has a comparative advantage in the production of both goods
D. None of the above
COUNTRY A
COUNTRY B
GOOD 1
5
4
GOOD 2
3
2
Table 1
30. Consider again the data in Table 1. Suppose country B has twelve units of labour and country
A has 16 units of labour. Suppose also that the preferences of citizens in both countries are such
that they always prefer to consume equal quantities of each good. In the absence of trade, how
much of each good will country B produce?
A. 48 units
B. 24 units
C. 16 units
D. 6 units
31. Consider again the information in Q30 above. If these two countries specialize according to
comparative advantage and trade with each other, what is the global production of good 2?
A. 12 units
B. 16 units
C. 24 units
D. 48 units
32. The key to successful multilateralism is for all countries to adopt the same policies.
A. True
B. False
ECON 111 A01 7
33. The scale effect of trade arises because trade leads to
A. an increase in demand for environmental quality
B. a change in the composition of production
C. a geographical separation of production and consumption
D. an increase in the level of production
34. The composition effect of trade refers to
A. a trade-induced reduction in the level of production
B. a trade-induced relaxation of environmental standards
C. the adoption of cleaner production techniques
D. trade-induced shifts in production patterns within countries
35. The Environmental Kuznets Curve posits a relationship between pollution levels and per
capita income in which
A. pollution levels rise as income rises
B. pollution levels fall as income rises
C. pollution levels rise initially but eventually fall as income rises
D. pollution levels fall initially but eventually rise as income rises
36. Intra-sectoral adjustment refers to
A. adjustment across the industries and firms within a sector as a consequence of specialization
B. adjustment across the industries and firms within a sector as a consequence of the
exploitation of economies of scale and scope
C. the expansion or decline of different sectors of the economy as a consequence of
specialization
D. the expansion or decline of different sectors of the economy as a consequence of the
exploitation of economies of scale and scope
37. Economic theory states that
A. society as a whole is better off when some of its members gain and others lose if and only if
those who gain were initially worse off than those who lose
B. society as a whole is better off if the winners could in principle compensate the losers and
still be better off
C. society as a whole is better off after a Pareto improvement
D. None of the above
38. Some inequality of economic opportunity is essential for the creation of wealth because
A. some people are more productive than others
B. people need incentives to undertake effort and risk
C. guarantees of absolute equality are contrary to liberal democratic values
D. None of the above
ECON 111 A01 8
39. Industry concentration
A. means that there are a large number of small firms in the industry
B. leads to lower prices for consumers
C. can lead to economic rent for the firms in the industry
D. All of the above
40. A natural monopoly exists when
A. firms specialize in one type of production
B. a single firm has control over natural resources
C. unit production costs are lowest if all production is undertaken by a single firm
D. a small number of large firms control an entire market
41. Equilibrium in an economic system arises when
A. individual actions lead to an outcome in which each individual has an incentive to change
their action
B. individual actions lead to an outcome which is Pareto efficient
C. social welfare is maximized
D. None of the above
42. The equilibrium between rural and urban populations can be disrupted by
A. trade liberalization
B. war
C. absolute population growth
D. all of the above
43. Manufacturing and service sectors typically locate in cities because
A. land is more expensive in urban areas
B. cities allow the exploitation of network effects
C. urban workers are more productive
D. All of the above
44. Economies of scale in the provision of public infrastructure can lead to
A. lower average costs of provision in rural areas when people migrate to urban areas
B. higher average costs of provision in urban areas when people migrate to urban areas
C. lower average costs of provision in urban areas when people migrate to urban areas
D. network effects in urban areas
45. Cities can be the engines of their own growth
A. because people continually move from rural areas to urban areas
B. via a combination of network effects and economies of scale in the provision of public
infrastructure
C. because cities tend to spread out as they grow
D. only if network effects exhibit increasing returns to scale
ECON 111 A01 9
46. Trade-induced rural-to-urban migration may not cause a decline in the absolute level of
environmental quality in urban regions because
A. economies of scale enable the provision of more public infrastructure in urban areas
B. the technique effect of trade may offset the scale effect of urban growth
C. cities tend to spread out as they become more crowded
D. there are eventual diminishing returns to network size in urban areas
47. Key principles that should guide policy with respect to urbanization include:
A. policy should attempt to internalize externalities
B. policy should prevent migration from rural to urban areas
C. policy instruments should favour rural residents because they are relatively poor
D. All of the above
48. The relocation of domestic firms to jurisdictions that have lower costs
A. is the most important impact of reduced international competitiveness
B. is limited in reality by the adjustment costs associated with relocation
C. has nothing to do with tight environmental standards
D. improves domestic welfare because it removes polluting production from the domestic
country
49. Knowledge is a public factor because
A. it is generally created through schools and universities using public funds
B. its use by one agent prevents its use by other agents
C. new ideas enter the public domain immediately after their conception
D. None of the above
50. Creating the right incentives for firms to undertake research and development towards
pollution reduction requires
A. regulations that force all firms to adopt the least-polluting technology available
B. pricing of pollution
C. trade policies to protect those firms from foreign competition
D. All of the above
51. Adoption of a cleaner technology should be undertaken
A. whenever it is available
B. if and only if it reduces the cost of pollution abatement
C. if and only if it reduces environmental damage
D. None of the above
52. Psychic costs associated with environmental damage in another country
A. do not justify the use of import restrictions on strictly economic grounds
B. are not a true economic cost
C. are a true economic cost but are difficult to verify
D. are a true economic cost but are generally not substantial enough to justify import restrictions
ECON 111 A01 10
53. A race to the bottom in setting environmental standards
A. can leave all countries worse off than if they all adopted weaker standards
B. can leave all countries worse off than if they all adopted stricter standards
C. can give all countries a competitive edge over their trading partners
D. has no effect on welfare because all countries end up in the same place
54. Consider Table 2. It describes the game between two countries when their emissions are
transboundary. S indicates strict environmental standards; L indicates lax environmental
standards. Note that the two countries are not symmetric in terms of payoffs. The Nash
equilibrium outcome in this game is
A. country A plays S and country B plays L
B. both countries play L
C. both countries play S
D. None of the above
COUNTRY A
L
S
L
4, 4
8, 5
S
3, 8
7, 7
COUNTRY B
Table 2
55. Trade liberalization agreements alone may not necessarily lead to greater welfare because
A. they expose domestic industries to foreign competition
B. they can lead to higher overall levels of consumption
C. trade is bad for the environment
D. they do not eliminate the incentive for individual countries to attempt to capture a larger share
of global rents by distorting non-trade policies
ECON 111 A01 11
56. The least-cost cooperative solution to the climate change problem is
A. for developed countries to force developing countries to reduce emissions
B. to base relative abatement requirements on relative abatement costs
C. to base relative abatement requirements on relative climate change damage costs
D. for the relative burden of pollution abatement to be placed more heavily on developed
countries since they are primarily responsible for the existing stock of carbon in the
atmosphere
57. Cooperation can be especially difficult to achieve among countries with widely different
levels of wealth because
A. poor countries are too demanding in the negotiations
B. rich countries have most of the votes in the United Nations
C. global efficiency is likely to require wealth transfers
D. poor countries typically do not care about the environment
58. Side payments from developed countries to developing countries are likely to be a necessary
part of an efficient cooperative solution to the climate change problem because
A. efficiency calls for relatively less abatement in developing countries
B. developed countries are primarily responsible for the existing stock of carbon in the
atmosphere
C. developing countries have been subject to a long history of injustice at the hands of
developed countries
D. None of the above
59. Carbon leakage refers to
fugitive emissions from poorly maintained natural gas pipelines
the partial offset of unilateral emission reductions via, for example, the impact on fossil fuel
prices
leakage from geosequestration facilities
None of the above
60. The distortion of environmental policy for trade-related reasons can be magnified when
pollution is transboundary because
A. trade flows are lower when environmental policy is distorted
B. the transboundary nature of the pollution means that the environmental cost to any individual
country from relaxing its standards for rent-seeking goals is higher than it would be if the
entire effects of its pollution were felt within its borders
C. the trade-related distortion can give rise to a higher level of pollution in each country and a
higher associated flow of transboundary pollution
D. None of the above
ECON 111 A01 12
61. An allocation is efficient if
A. it is possible to switch to an alternative allocation in which at least one person is better and no
individual is worse off
B. everyone is equally well off
C. the distribution of wealth is equal across all people
D. None of the above
62. Economic efficiency does not identify a unique optimal resource allocation.
A. True
B. False
63. “Sustainable development” (though hard to define) is a resource allocation target which
incorporates a distributional element.
A. True
B. False
64. In the regulated market paradigm,
A. the allocation of resources is determined principally by a central planning authority
B. a regulator specifies what individual firms can and cannot do, enforced by the threat of
penalties for non-compliance
C. resource flows are determined principally by decentralized market forces shaped by
regulation
D. government does not interfere with the allocation of resources by markets
65. The choice of regulatory regime in the policy design problem
A. should be viewed as choosing a mix of policy types
B. is a binary choice between command and control regulation and economic instruments
C. must be made before the resource allocation target is set
D. should focus exclusively on economic instruments because of their superior efficiency
properties relative to other policies
66. The choice over the particular tax to apply to gasoline – for example, 5 cents per litre or 10
cents per litre – is a choice over
A. regulatory regime
B. regulatory paradigm
C. instrument value
D. None of the above
67. Intensity standards are typically more cost-effective than emissions standards in achieving
sensible pollution targets than because
A. they allow continuing economic growth while still controlling pollution
B. they generally allow the achievement of an emissions target at least-cost
C. they allow emissions levels to be matched to output levels
D. None of the above
ECON 111 A01 13
68. Design standards are always better than performance standards because
A. they prevent pollution at the source
B. design standards are easier to monitor
C. they accelerate the adoption of cleaner technologies
D. None of the above
69. The required use of catalytic converters in automobiles is an example of
A. an input standard
B. an emissions standard
C. a design standard
D. an intensity standard
70. Non-point source pollution refers to
A. pollution that cannot be easily traced to a single point of emissions or effluent
B. pollution from multiple sources
C. pollution that becomes uniformly dispersed in the medium into which it is discharged
D. non-polluting emissions or effluent
71. Restrictions on the use of polluting inputs are generally preferable to emission standards
A. when emissions are very damaging
B. because they create stronger incentives for the adoption of new technologies
C. in the case of non-point source pollutants that are difficult to monitor
D. None of the above
72. The use of input standards for controlling mobile source pollutants may be justified because
A. emissions are closely correlated with inputs for most mobile source pollutants
B. emissions are often difficult to monitor for mobile source pollutants
C. environmental damage from mobile source pollutants tends to be small
D. mobile sources pollutants are uniformly mixed
73. A policy with cost-effective emission standards typically needs to assign different standards
for different pollution sources because
A. some sources are easier to monitor than others
B. some sources generate more pollution than others
C. sources differ with respect to abatement costs
D. none of the above
74. An important problem with command and control (CAC) regulations relative to economic
instruments is that
A. the information needed to set CAC regulations in a cost-effective way is often unavailable
B. CAC regulations tend to be too strict
C. fines must be set too high to ensure compliance with CAC regulations
D. there is an excessive incentive for firms to adopt new technologies under CAC regulations
ECON 111 A01 14
75. Which of the following instruments does not put a price on emissions?
A. emission fees
B. an emissions trading program
C. cleaner technology adoption subsidies
D. offset trading
76. The key feature of economic instruments for environmental policy is that they
A. help protect the environment without imposing a cost on the economy
B. utilize market forces to achieve environmental goals
C. do not attempt to put a price on environmental damage
D. do not interfere with market forces in the allocation of resources
77. An emissions fee cannot achieve the equalization of marginal abatement costs across different
sources
A. unless the regulator can infer marginal abatement costs from how firms respond to the fee
B. unless sources coordinate on how best to respond to the emission fee
C. if different sources face different fees
D. if all sources face the same fee
78. The main drawback with an emissions fee is that
A. it gets passed on to the consumer in the form of higher prices for goods and services
B. it does not create an incentive for the adoption of cleaner technologies
C. information about abatement costs is needed if the fee is set to implement a particular
pollution target
D. information about abatement costs is needed if the fee is set to ensure that marginal
abatement costs are equated across sources
79. In an emissions trading scheme,
A. the price of emissions is set by the regulator
B. the price of emissions is determined only by the demand for permits
C. trading is only allowed if it reduces the overall level of emissions
D. None of the above
80. The main advantage of emission fees relative to emissions trading is that
A. the regulator can implement the target level of emissions without any information about
abatement costs
B. fees get passed on to consumers and so have less impact on production costs and
competitiveness
C. fees creates an incentive for the adoption of cleaner technologies
D. None of the above
ECON 111 A01 15
81. Emissions trading generally does not reduce pollution by as much as an emissions tax because
firms can increase their emissions by buying more permits whereas an emissions tax always
causes a firm to reduce its emissions.
A. True
B. False
82. The goal of a deposit-refund system should be
A. to raise government revenue
B. to create the right incentives with respect to the disposal of consumer waste products
C. to divert all recyclable waste from landfills
D. to educate consumers about the environmental impacts of their consumption behaviour
83. An environmental security scheme
A. is intended to induce potential polluters to engage in precautionary action
B. is different from a deposit-refund scheme because the security payment is not always
refunded
C. is an incentive-based scheme designed to eliminate environmentally risky activity
D. All of the above
84. A tort is a breach of contractual duty
A. True
B. False
85. Information disclosure schemes are an effective alternative to economic instruments because
A. they change consumer preferences
B. they internalize external costs
C. they do not impose additional costs on consumers
D. None of the above
86. An effective ecolabel scheme
A. must balance recognizability with strictness of the standard
B. should place a higher standard on imported goods because consumers usually have less
information about those goods
C. should not impose additional costs on consumers
D. All of the above
87. Economic instruments that put a price on pollution can be a more equitable approach to
environmental regulation than uniform standards in the sense that
A. they lead to greater reductions in pollution
B. wealthy households have to pay more
C. those who cause less environmental damage are required to pay less
D. All of the above
ECON 111 A01 16
88. In reference to a monitoring and enforcement policy, the expected penalty is equal to
A. the actual penalty multiplied by the number of times the firm has violated its standard over a
given period
B. the actual penalty divided by the number of times the firm has violated its standard over a
given period
C. the actual penalty multiplied by the probability of being found in non-compliance
D. the actual penalty divided by the probability of being found in non-compliance
89. Command and control policies are better than economic instruments when international
competitiveness is a consideration because economic instruments raise production costs while
command-and-control policies do not.
A. True
B. False
90. The double dividend associated with taxes on pollution refers to the fact that these taxes
A. reduce pollution and reduce the use of resources
B. reduce pollution today and strengthen incentives for the innovation of cleaner technologies
for the future
C. reduce pollution and allow distortionary taxes elsewhere in the economy to be cut
D. reduce pollution and reduce production costs by encouraging innovation
91. In a referendum-format contingent valuation, survey respondents are asked to state whether or
not they are willing to pay a specified bid price in return for the protection of an environmental
amenity.
A. True
B. False
92. Logit regression is a statistical technique used in contingent valuation for estimating the
likelihood of a “yes” response to the referendum question as a function of the bid price for the
respondent and the characteristics of that respondent.
A. True
B. False
93. Revealed preference techniques ask survey respondents to state their valuation of an
environmental amenity.
A. True
B. False
94. The hedonic price of a characteristic of a market good (such as the proximity of a house to a
park) measures the importance of that characteristic as a determinant of the market price of the
good.
A. True
B. False
ECON 111 A01 17
95. The essential logic behind the travel cost method is that the amount someone is willing to
spend to visit a recreation site reflects the value she places on that site.
A. True
B. False
96. The main threat to biodiversity at a global level is
A. climate change
B. deforestation in the tropics
C. deforestation in temperate zones
D. oceanic pollution
97. The passive use value of an environmental resource includes
A. option value
B. bequest value
C. existence value
D. All of the above
98. In the Metrick-Weitzman framework, the components of the value of a species include
A. the direct value of the species itself
B. the value of the genetic information embodied in that species
C. the value of the interdependency of that species with other species
D. Both A and B
99. According to the Weitzman preservation index, a species has a higher preservation index if
A. the cost of preservation is higher
B. the change in probability of survival if protected is lower
C. the direct value of the species is lower
D. the distinctiveness of the species is higher
100. Consider the evolutionary tree depicted in Figure 3. From among these four species, the
smallest loss of genetic information would occur from the extinction of either species 4 or 5.
A. True
B. False
ECON 111 A01 18
SPECIES 1
SPECIES 2
SPECIES 3
Figure 3
END
RED
SPECIES 4
SPECIES 5
ECON 111 A01 19
ANSWER KEY
1. C
2. B
3. D
4. A
5. D
6. A
7. B
8. D
9. C
10. A
11. B
12. B
13. B
14. B
15. C
16. C
17. D
18. D
19. B
20. B
21. B
22. C
23. A
24. B
25. B
26. D
27. D
28. A
29. A
30. C
31. D
32. B
33. D
34. D
35. C
36. B
37. C
38. D
39. C
40. C
41. D
42. D
43. B
44. C
45. B
46. B
47. A
48. B
49. D
ECON 111 A01 20
50. B
51. D
52. C
53. B
54. A
55. D
56. B
57. C
58. D
59. B
60. D
61. D
62. A
63. A
64. C
65. A
66. C
67. D
68. D
69. C
70. A
71. C
72. B
73. C
74. A
75. C
76. B
77. C
78. C
79. D
80. D
81. B
82. B
83. A
84. B
85. D
86. A
87. C
88. C
89. B
90. C
91. A
92. A
93. B
94. A
95. A
96. B
97. D
98. D
99. D
100. A
ECON 111 A01 21