AGEC 5090 MT 2

Suppose the interest rate i is 10%. A specialty farm generates profits of $1,000/acre per year. What is the value of 1 acre of that farm?

$10,000

Suppose the interest rate i is 3%. A specialty farm generates profits of $300/acre per year. What is the value of 1 acre of that farm?

$10,000

Suppose there is a 30% chance that an oil spill will occur in an area and the economic damage of the potential spill is $1 million. What is the Expected Value associated with the spill?

$300,000

Costs imposed on future users of a resource are called...

(Marginal) User costs/ Scarcity Rent

Which of the shapes below best describes a typical Hubbert curve?

A bell shape

Which of the following is true about higher discount rates?

A higher discount rate will favor the present. the amount allocated to the second period falls as the discount rate rises.

Which one of the following is NOT an example of natural capital?

A road.

The Prior Appropriation Doctrine means that

A user who had previously applied part of the water from a stream to beneficial use had superior rights to the water.

Most of the world's fresh water is used for...

Agricultural purposes

The price at which the quantity demanded is zero is called the...

Choke price

A decrease (shifting down) in the bid rent function for agriculture could result from....

Closing of export markets for agriculture that decrease the foreign demand for local crops.

Suppose we increase the discount rate used to allocate a depletable resource consumption over time. Which one of the following statements is FALSE?

Current consumption of the resource will decrease.

What is the difference between static efficiency and dynamic efficiency?

Dynamic efficiency considers future impacts of today's decisions (like resource consumption). Static efficiency does not.

In the figure above, what would be the monopoly price and quantity?

F & A

Which one of the following variables has DECREASED steadily over the past 40 years?

Global arable crop land per capita

What economic theory/rule tells use about the price of a non-renewable resource over time?

Hotelling's rule.

Which one of the following is an example of demand-side water management?

Increasing water prices.

Assuming the Hotelling's rule applies to a resource market, which of the following statements is FALSE?

Interest rates rise over time.

All of the following are problems with the allocation of groundwater EXCEPT

It is impossible to know where to look for groundwater.

Zoning in land economics means...

Land use restrictions enacted via an ordinance by local governments to create districts (zones) that establish permitted and compatible land uses.

Which of the following is NOT a part of the Transferable Development Rights (TDRs) system used to increase the efficiency of land preservation?

Landowners in sending areas must buy development rights from landowners in receiving areas.

Which of the following is NOT correct about Leapfrogging?

Leapfrogging occurs when new development continues on the very edge of (next to) the current development.

Suppose a demand schedule is P=100-Q and the marginal cost of supply is a constant: MC=20. What is the marginal net benefit (MNB) curve?

MNB=80-Q

Below is a figure that shows monopoly pricing (for profit maximization). Why do Demand and Marginal revenue differ?

Marginal Revenue accounts for price decreases as the monopoly sells more.

The Marginal User Cost (MUC) reflects...

Opportunity cost caused by inter temporal scarcity of the resource (the difference between the price and the marginal extraction cost)

The Frustration of Public Purpose refers to

Possible exercise of monopoly power (holdup) by the over of a property that is to be acquired by the government under the Eminent Domain doctrine.

Why, for many years (1990's), it was not perceived to be wise to explore new areas or invest in new oil extraction technologies?

Price of oil was too low at the time.

What is the VALUE of an acre of farmland that generates PROFIT in perpetuity (forever) in an economy where the discount (interest) rate is i?

Profit/i

User costs will be incorporated into the price of a depletable resource if...

Resource owners foresee future shortages (realize the total supply is finite)

Bid rent functions (for land)....

Show maximum net benefit per acre that could be achieved by a given land use as a function of the distance from the center of an urban area.

Which one of the following policies would NOT reduce water use?

Subsidizing irrigation water supply.

We can optimize/forecast the past of the future resource consumption and prices when we know (1) how much of the resource is left, (2) the demands for the resource, and (3) the discount rate(s). From what we learned, what is the problem with real world data on oil demand and supply?

The data are not reliable and becomes available with a lag of one to two years.

Which one of the following statements is true about demand for water?

The demand for water is price inelastic for both residential and irrigation uses.

_________________ reinforces the conclusion that the problem of malnutrition is NOT one of global scarcity.

The fact that the AVERAGE member of the DEVELOPING world has a sufficient caloric intake.

The Eminent Domain doctrine means....

The government can legally acquire private property for a "public purpose" by condemnation as long as the landowner is paid "just compensation".

How would we expect free international trade to affect agriculture in a developing country?

The land devoted to export crops should increase.

In this two time-period example, economic efficiency is maximized when....

The marginal net benefit in the first time period is set equal to the present value of the marginal net period in the second time period.

The Hotelling's rule states that..

The net price of a resource rises at a rate equal to the interest rate.

Which one of the following statements is true about prices of renewable energy?

The prices of renewable energy are more stable than the price of fossil fuels.

Which is true of the switch point?

The prices of the depletable and the renewable resources are equal (marginal user cost equals zero).

A Hubbert curve (from the Hubbert Peak theory) shows

The production of a resource over time.

Why was Hubbert wrong with his "Peak Oil" theory of the world oil production?

The spread of new technologies and discoveries have increased the world oil reserves enough to meet the growing demand, increasing and delaying the peak production.

_____________________ are specifically designed to facilitate the transition to renewable power by overcoming obstacles to an efficient allocation of electricity.

Tradable energy certificates (TECs)

In addition to paying the world price, a nation must consider a ________________ that reflects the additional national security cost caused by imports of strategic resource.

Vulnerability premium.

What is the main potential benefit of water markets?

Water is used for its most highly-valued purposes.

Assuming economic efficiency is maximized when will more of a resource be used in the first time period than in the future time periods?

Whenever the discount rate is positive.

Are monopoly prices higher realtime to competitive prices?

Yes.

Establishing property rights can decrease market inefficiencies by

avoiding the problems of over-exploitation of land.

Why would it be profit maximizing?

because Marginal Revenue=Marginal Cost

U.S. government-imposed price ceilings on natural gas...

caused shortages of natural gas.

Some examples of renewable resources are...

corn ethanol, fish.

Today, a major restriction on water transfers is the 'preferential use' which

establishes a value hierarchy of uses (i.e. residential, industrial, agricultural, etc.)

Suppose you represent a country that is a heavy producer of cobalt (valuable resource). Several other major cobalt producing countries have suggested that you form an organization (a cartel), restrict your exports, and drive up the international price of cobalt. In considering whether to join the cartel, what is NOT a major economic factor you should take into account?

estimates of the remaining oil reserves in the world.

The most plausible reason for malnutrition that exists in the world is that

food is not being adequately distributed.

The choice to preserve agricultural land or sell it to a developer is biased toward development by each of the following EXCEPT

increased public awareness of the benefits of conservation.

OPEC (Organization of Petroleum Exporting Countries)

is primarily concerned with production of quantity and prices.

Dynamically efficient allocation...

maximizes the present value of the Net Benefits (total surplus) from a depletable resource received in both periods.

Limitations to the use of uranium as an energy source include

nuclear accidents and the storage of radioactive waste.

Usufructory right in water economics means

the government has the right to ownership but the claimants have the right to use.

As the non-renewable resource is being depleted...

the price rises and extraction decreases.

The Riparian Rights doctrine means that

the right to use the water is accorded to the owner of the land adjacent to the water.

In a two-period model, the same quantity of a resource will be used in both time periods....

when the discount rate is zoo and the marginal net benefit curves are equal.