ENVS 335 Final
Which valuation method would you use to measure the losses when a species that relieson wilderness for habitat goes extinct? (a) Contingent valuation method (b) Hedonic method (c) Travel cost method (d) None of the above
(a) Contingent valuation method
What information do you need to calculate consumer surplus? (a) Quantity, price, and the shape of the demand curve (b) Quantity, price, and cost (c) Quantity, price, and the shape of the supply curve (d) None of the above
(a) Quantity, price, and the shape of the demand curve
Which of the following is NOT acceptable in conducting a cost-benefit analysis? (a) Using peer-reviewed papers in non-economics journals (b) Choosing a discount rate to maximize net benefits (c) Calculate the PDV costs before the PDV benefits (d) Compare more than two options
(b) Choosing a discount rate to maximize net benefits
Which of the following is NOT a step in cost-benefit analysis? (a) Identify the actions (b) Identify the planning horizon and discount rate (c) Identify structural constraints (d) Measure cost and benefits
(c) Identify structural constraints
How does a country increase the stock of manufactured capital? (a) Slowing production of manufactured goods (b) Increase production of manufactured goods (c) Invest part of its income (d) Following the golden rule of accumulation
(c) Invest part of its income
PDV formula
(x/1+r)^t
sources of economic growth (3)
1 ) Increase of the # of workers 2 ) Increase of capital (more machines, factories, cars, etc.) 3 ) Increase of labor production, as a result of specialization, skills, technology.
Steps in cost-benefit analysis (6)
1. Determine What Are The Possible Actions & What Is Status Quo 2. Determine Planning Horizon & Discount Rate 3. Determine (List) Cost & Benefits 4. Measure Costs and Benefits 5. Calculate Present Discounted Value of Costs & Benefits
discount rates used in cost-benefit analyses of public projects
3% and 7% are typical, lower rate preferred for social projects
discount rates
3-7% for federal / gov. (closer to 3) 7% SDR
which formula would you use to calculate the present discounted value of $5,000 received in 20 years, given a discount rate of %5?
5000/(1.05)^20
Depreciation
A decrease or loss in value
market failure
A market failure occurs when Pareto efficiency (the max amount of P. Improvements possible) is not occurring (resulting) in an inefficient allocation of goods and services
Fill in the blank: A higher discount rate —- the present discounted value. (a) Lowers (b) Increases (c) Has no effect on (d) Has an ambiguous effect on
A. Lowers
GDP definition
All income generated in a year in a country (a measure of how much a country produces in a year)
Contingent Value method (example and definition)
Asks people to state their preferences for an outcome given some payment or trade-off. Example: damages from pollution may affect someone's self-reported WTP for a good
capital
Asset used in the production of goods and services. Include manufactured forms of wealth (housing & machines, environment, and natural resources).
Which of the following is NOT a category in GDP? (a) Consumption (b) Investment (c) Net depreciation (d) Net exports
C. Net depreciation
How do economists measure the value a person has for a good or service? (a) The number of goods or amount of services they purchased (b) The number of people buying the good or service (c) Their maximum willingness to pay for a good or service (d) The amount of money they spent on a good or service
C. Their maximum willingness to pay for a good or service
How is overconsumption defined using economic thinking? (a) Population exceeds environmental carrying capacity (b) Population growth exceeds food production growth (c) Consumption exceeds income and capital stock declines (d) Consumption exceeds investment in the capital stock
C. consumption exceeds income and capital stock declines
which of the following is NOT acceptable in conducting a cost-benefit analysis? (a) Using peer-reviewed papers in non-economics journals (b) Choosing a discount rate to maximize net benefits (c) Calculate the PDV costs before the PDV benefits (d) Compare more than two options
Choosing a discount rate to maximize net benefits
the production function y=Ak^α * l^1−α is known as a
Cobb-Douglas production function
green NDP
GDP - Depreciation of Manufactured & Natural Capital Y + C + I - Dk - Dr + G + NX
relationship between income and capital
Income is linked to capital; income depends on capital. Capital is an asset that is transferrable.
What is a weakness of GDP when it comes to tracking sustainable growth and development?
GDP is a measure of production that does not subtract the part of production that must be invested to offset depreciation; this investment is necessary to maintain production and well-being
NDP
NDP = GDP - depreciation Y= C + I - D + G + NX
social surplus
Producer + Consumer + Governmental
travel cost method (example and definition)
Relates differences in quantity demanded for recreational resources to travel Example: can show how a polluted river along a recreational area/park impacts how many trips are made to that park. It will probably show. A decrease in # of trips and hence a reduction in WTP and consumer surplus.
natural capital
Renewables, non-renewables
IW
The asset value of all manufactured, human and natural capital Best for assessing sustainable development IW = K + H + R
If Canada's Gini coefficient is 32.2 and the US's Gini coefficient is 42.0:
US has greater inequality
GDP formula
Y = C + I + G + NX
The golden rule of capital accumulation
a Maximum sustainable function is acheieve when change is output from addition unit of capital f(k+1) - f(k) > s ==> Invest more in capital stock, increase investment f(k+1)-f(k)< s ==> Invest less in K
Pareto improvement
a an allocation change is good and improves social welfare when it makes someone better off without making someone else worse off.
consumer surplus
a difference b/w what consumers are WTP v. what they pay for a good
The Gini Index
a mathematical formula that measures the amount of economic inequality in a society Number between 0 and 1 where 0 is perfect equality and 1 is total inequality
Hedonic method (example and definition)
a relates price differences to the attributes of a good method is appropriate when the environmental amenity affects the demand of a good allocated through markets, and therefore has a market $ (P) Example: can show you how air pollution in a neighborhood can impact someone's WTP for a house in that area, their WTP will most likely decrease.
economic value
a the maximum amount of income a person is willing to pay for a good or service
average annual US GDP growth since the 1990s
about 2% annually
US capital-income ratio
about 400% or 4:1
share of US national income going to top 10% of earners in 1930s, 1970s, and 2010s
about 45%, 35%, and 45%, respectively
How is GDP used
compare to previous years, compare policy changes, compare to other countries
How is overconsumption defined using economic thinking?
consumption exceeds income and capital stock declines
Which valuation method would you use to measure the losses when a species that relies on wilderness for habitat goes extinct?
contingent valuation method
producer surplus
difference between what the producer sells their good for vs how much it is to produce the good
Toxic waste dumped into a stream from a factory that harms downstream users (e.g. anglers, waterfront residents, riparian wildlife) without compensation is an example of what?
externality
economic equity
fair distribution of resources Measures of resources/ consequences of resources (income, life expectancy, education)
trends in weak sustainability measures (green NDP) in high-income countries
generally increasing, roughly 1%-2% on average in high-income countries
what does green NDP measure?
income
How does a country increase the stock of manufactured capital?
investing part of its income
steady-state economy
means constant per capita income and constant per capita capital
production functions
measures how farms and factories (even ecosystem services) use capital and labor to produce goods and services.
types of capital (2)
natural, manufactured
Weak sustainability
nondiminshing capital
strong sustainability
nondiminshing capital and nondiminishing critical capital
economic cost
the value of all resources used to produce a good or service; opportunity cost
What type of environmental regulation dictates an overall level of emission ex ante and is generally cost effective?
tradable pollution permits
economic surplus
value - cost
can a country grow weakly but not strongly?
yes, it can grow weakly but not strongly when the critical capital is diminishing. It is weak when there is non diminishing capital