Assignment 1
Part 1: Multiple-Choice Questions (15 Questions, 4 Points Each)
1. Which of the following is NOT a key assumption of perfect competition in resource markets?
a) Many buyers and sellers
b) Perfect information
c) High barriers to entry
d) Homogeneous products
2. The "free-rider problem" is most associated with:
a) Private goods
b) Public goods
c) Open-access resources
d) Tradable permits
3. If a resource has a high discount rate, current extraction is likely to be:
a) Lower (future benefits valued more)
b) Higher (future benefits discounted heavily)
c) Unaffected
d) Determined by government policy
4. Which valuation method uses observed market behavior. to estimate environmental benefits?
a) Contingent valuation
b) Hedonic pricing
c) Cost-of-illness approach
d) Stated preference
5. A Pigouvian tax is designed to:
a) Subsidize polluters
b) Internalize external costs
c) Encourage overuse of resources
d) Replace property rights
6. The optimal level of pollution occurs where:
a) Marginal abatement cost = Marginal damage cost b) Pollution is zero
c) Abatement costs are minimized
d) Government sets a strict limit
7. Dynamic efficiency requires that:
a) Current extraction maximizes short-term profits
b) Resource use balances present and future welfare
c) All resources are used immediately
d) Externalities are ignored
8. Which is an example of a common-pool resource?
a) A private forest
b) The atmosphere
c) A toll road
d) A patented invention
9. The Coase Theorem fails when:
a) Property rights are unclear
b) Transaction costs are low
c) Markets are competitive
d) Externalities are small
10. Which policy is least efficient in reducing pollution?
a) Tradable permits
b) Command-and-control regulations
c) Pigouvian taxes
d) Subsidies for clean technology
11. The "opportunity cost" of resource extraction refers to:
a) The market price of the resource
b) The value of the next-best alternative foregone
c) Government taxes on extraction
d) Environmental damage only
12. Which of the following best describes "market failure"?
a) A stock market crash
b) When markets allocate resources inefficiently
c) High profits in competitive markets
d) Government intervention in pricing
13. The "marginal user cost" in resource economics accounts for:
a) Current extraction costs only
b) The future scarcity value of the resource
c) Government subsidies
d) Pollution externalities
14. A "cap-and-trade" system is an example of:
a) A command-and-control policy
b) A market-based environmental policy
c) A Pigouvian subsidy
d) A free-market externality
15. The "social cost of carbon" measures:
a) The price of coal in global markets
b) The economic damage from emitting one ton of CO2
c) Government spending on climate policies
d) The cost of renewable energy subsidies
Part 2: Short-Answer Questions (3 Questions)
1. Explain how property rights influence resource sustainability. (10 points)
2. Compare the travel cost method and hedonic pricing for environmental valuation. (15 points)
3. Why might a high discount rate lead to unsustainable resource extraction? (15 points)