Econ 350
Sample Exam 2

1.         A marginal damage function represents
a)         the costs associated with reducing pollution to a lower level
b)         the increase in damage that results from an increase in the level of pollution
c)         the opportunity costs associated with production of a good or service
d)         the costs of labor, capital and energy needed to lessen the emission of pollution
e)         both (a) and (d)

2.     A marginal abatement cost function represents: 
a)     the costs associated with reducing pollution to a lower level. 
b)     the increase in damage that results from an increase in the level of pollution. 
c)     the opportunity costs associated with production of a good or service. 
d)     the cost of labor, capital, and energy needed to lessen the emission of pollution. 
e)     both (a) and (d) 

3.         Using quantitative risk assessment analysis, compute the value of a statistical life if the average wage premium for a riskier job is $1000, and this job is riskier in the sense that the increased annual likelihood of a fatal accident is 1 person for every 5000 full time employees. Assume that the workers are fully informed and the labor market is competitive.
a)         $1 million.
b)         $10 million.
c)         $5 million.
d)         $20 million.

4.         The                   the discount rate used in computing a cost-benefit analysis, the                  the weight placed on FUTURE benefits and costs.
a)         lower; lower
b)         higher; higher
c)         higher; lower
d)         none of the above

5.         When a consumer reserves the right to use a resource in the future this is called:
a)         use value.
b)         altruistic value.
c)         existence value.
d)         option value.

           MAC₁ = 20 - 2E₁ 

           MAC₂ = 12 - 2E₂ 

The unregulated level of pollution for each polluter is: 
a)     20 units by polluter 1 and 12 units by polluter 2. 
b)     10 units by polluter 1 and 6 units by polluter 2. 
c)     6 units by polluter 1 and 10 units by polluter 2. 
d)     none of the above. 

7.     The travel cost method is based on the premise 
a)     that a survey of individuals at different recreational sites will provide information about the appropriate level of pollution at camp sites. 
b)     that travel cost to a site can be regarded as the price of access to the site. 
c)     that individual measurements of consumer surplus can be used to generate an average value associated with a specific recreational site. 
d)     both (b) and (c) 

8.      Suppose we are comparing two ways of protecting ourselves against mobile-source air pollution:  putting additional controls on the internal combustion engine or developing an entirely different type of engine that is cleaner.  How would changes in the discount rate be likely to affect the comparison between these two options?

9.      Suppose a cost-benefit study claims that a development project will create 1,000 new jobs.  Is the creation of jobs a societal benefit?  Explain why or why not.

10.    What is the difference between cost effectiveness analysis and cost-benefit analysis?

11.    Referring to the MAC curves from #6 above, answer the following questions:
        a)    What is the total cost of abatement if each polluter reduces their emissions by 50%?
        b)    Suppose that MD is a constant $8 per unit of emissions, what are the optimal emissions for polluters 1 and 2? 
        c)    What is the sum of total social costs (damages + abatement) at the optimal emissions from part (b)?