University of Colorado at Boulder, Fall 2004

Natural Resource Economics Econ 3535

Instructor: Vijaya Sharma, Ph.D.
Exam 3
Answer all 30 multiple-choice questions, each worth one point.
1. Which is often the most important and generally the largest component of marginal
cost of having a child?
a. the opportunity cost of time of mother
b. cost of health care of child
c. increase in cost of housing due to the child
d. increase in cost of food and clothes
2. Which population growth rate larger or smaller is likely to add relatively more
to younger age population (youth effect on size of labor force)?
a. larger
b. smaller
c. uncertain
d. Population growth rate does not affect the age structure of population.
3. Which population growth rate larger or smaller is likely to make relatively
more women available for labor force (female availability effect)?
a. larger
b. smaller
c. uncertain
d. Population growth rate does not affect female availability to labor force.
4. What is the reason for demand for children by a married couple?
a. normal procreation demand
b. demand for children as free helping hands for household production in
subsistence economies
c. demand for children, especially sons, to raise mothers social status in certain
cultures
d. All of the above are different reasons for demand for children.
5. Which correctly describes the effect of economic growth on population growth?
a. Economic growth raises economic status of women and their opportunity cost of
having and mothering a child and thus reduces the number of children they plan to
have.
b. Economic growth reduces infant mortality rate and thus increases the number of
children married couples plan to have.
c. Economic growth increases household income and thus increases demand for
children.
d. None of the above

6. What is the Equimarginal Principle?

a. It states that allocation of a fixed quantity of water is efficient when the allocation
equalizes marginal net benefits across all users.
b. It states that allocation of a fixed quantity of water is efficient when the allocation
makes marginal net benefits of all users zero.
c. It states that allocation of a fixed quantity of water is efficient when the allocation
equalizes each users total benefit to total cost.
d. It states that allocation of a fixed quantity of water is efficient when the benefitcost ratio exceeds one.
7. Allocation of one more gallon of water to User X by withdrawing water from another
user forces a loss of marginal net benefit of that water on the other user. This loss is
specifically known as
a. the marginal cost of supplying water.
b. the marginal user cost of reallocating water.
c. the vulnerability premium of reallocating water.
d. none of the above.
8. In the paper, "Is Water Different?," Miller et. al. present evidences to argue that
a. water has zero price elasticity of demand.
b. water is a necessity and its consumption does not decrease even when its price is
raised.
c. consumption of water, like that of most other commodities, decreases when its
price is raised.
d. household consumption of water remains same when a flat monthly fee is
replaced with a price on every gallon of water used.
9. Under a block rate pricing rule, an initial block of use of water is charged a lower
price. For any water use that exceeds the initial block of use, a higher price is
charged. Use of this pricing rule, instead of a flat fixed monthly fee or a single
uniform price for every gallon of use,
a. makes water cheaper for everyone rich or poor.
b. is an attempt to efficiently allocate water among users.
c. is a compromise between efficient and equitable distribution of water among rich
and poor users.
d. has no relation to efficiency or equity of water distribution.
10. Which correctly describes the use it or lose it principle mentioned in Is Water
Different reading?
a. A user has to relinquish its user rights for ever over any unused portion of water
allotted to the user. This rule discourages users from conserving water.
b. During periods of water shortages, users that rank higher up in the
bureaucratically determined hierarchy of water use categories get the priority in
reallocation of available water.
c. Both a and b together describe the use it or lose it principle.
d. None of the above describes the use it or lost it principle.

11. Stumpage Value of a stand of tree is

a. the value of timber in the stand.
b. the value of timber in the stand, minus the cost of harvesting the tree.
c. the value of timber in the stand, minus the cost of harvesting the tree and minus
the cost that was incurred for planting the tree.
d. none of the above.
12. To stop the continuously rising price of timber from further rising, government sets a
price ceiling. How would this price ceiling affect the current rate of harvesting of
trees?
a. The rate of harvesting will increase.
b. The rate of harvesting will decrease.
c. The rate of harvesting will remain the same.
d. The effect on rate of harvesting is indeterminate.
13. How long would a private forestry business wait to harvest a tree it has planted?
Assume no replantation at that site.
a. The business will wait until the tree fully matures into maximum timber volume.
b. The business will wait as long as the stumpage value of timber in the tree grows at
a rate higher than the rate of discount.
c. The business will wait as long as the ratio of timber volume to the age of tree
grows.
d. The period of wait is arbitrary and, therefore, uncertain.
14. Timber benefits of trees are realized when trees are harvested and sold. On the other
hand, their non-timber benefits like recreational, ecological, and other services of
forests are realized by letting trees stand and grow. Is it ever conceivable in economic
theory that no harvesting of trees for ever is the optimal solution?
a. Yes, if non-timber benefits of standing trees exceed timber benefits
b. It is never optimal not to harvest trees for timber.
c. Economic theory ignores non-timber benefits of trees.
d. Economic theory has no answer to this question.
15. How will a private forestry business adjust its earlier plan of harvesting period when
it learns new information that timber prices will now be rising over time?
a. The business will prolong the harvesting period.
b. The business will shorten the harvesting period.
c. The business will not change its plan, as price has no effect on harvesting
decision.
d. Effect of prices on harvesting decision is indeterminate.
16. In the reading Free Market Forestry, the author recommends allowing environmental
activist organizations to bid for tree-cutting privileges in federal logging lands. What
is the economic argument in support of such a recommendation?
a. Increased competition will increase the bid amount offered by loggers.
b. In their bids, bidders shall have to now consider both the timber and non-timber
benefits of trees.
c. This practice recognizes the fact that forests not only supply timber, they have
multiple uses.
d. All of the above are relevant economic arguments for opening bids to
environmental activist organizations.

17. In a privately managed fishery, the owner manages the business for maximum profit.
When managed in this fashion, the rent of fish stock in the fishery will be
a. maximum.
b. less than maximum, but not zero.
c. zero.
d. negative.
18. On the other hand, when a fishery is open-access, the rent of fish stock in the fishery
is expected to be
a. maximum.
b. less than maximum, but not zero.
c. zero.
d. negative.
19. Which is a common theme discussed in readings: Conservation through Commerce
and Bye, Bye, Bison?
a. They both discuss the effect of environmental pollution on extinction of species.
b. They both discuss the endangerment of survival animal species when they have
open access and when the marginal cost of hunting these animals is very low.
c. They both discuss the importance of maximum sustainable yield of fishery and
animal species.
d. They both discuss the historical trend of prices of renewable resources to infer the
general trend of their scarcity.
20. Maximum sustainable yield (MSY) in a fishery is
a. the efficient rate of catch of fish that maximizes the rent of fish stock.
b. the efficient rate of catch of fish that maximizes the amount of sustainable catch.
c. the maximum rate of catch of fish that is sustainable, but not necessarily efficient.
d. the maximum rate of catch of fish that is sustainable and yields maximum profit.
21. According to the economic model of fishery, the efficient level of fishing effort is
where
a. the marginal revenue from effort is equal to the marginal cost of effort.
b. the total revenue from effort is equal to the total cost of effort.
c. the total cost of effort is equal to zero.
d. the total revenue from effort is equal to zero.
22. According to the economic model of fishery, what is the condition of extinction of a
fish or animal species?
a. When marginal revenue of effort is equal to marginal cost of effort on fishing.
b. When marginal cost of effort on fishing or hunting is substantially high.
c. When a fishery is privately and efficiently managed.
d. When fishery or animal species is open access and the marginal cost of fishing or
hunting is very low, almost zero.
23. When is maximum sustainable yield (MSY) of fishery socially efficient?
a. When marginal cost of fishing effort is positive.
b. When marginal cost of fishing effort is zero.
c. When marginal cost of fishing effort is negative.
d. When marginal cost of fishing effort initially increases and then decreases.

24. Which indicator of economic scarcity does not have foresight (is not affected by
anticipated future scarcity and/or anticipated technological changes)?
a. competitive market price of extracted resource commodities
b. competitive rent or price of in-situ resources
c. the marginal cost of extraction of a resource
d. All of the above indicators have no foresight.
25. In her work on trend of prices of 11 minerals and fuels, Slade (1982) found that the
general time trend of prices of natural resource commodities was
a. U-shaped; prices initially decreased but later increased.
b. linearly increasing.
c. linearly decreasing.
d. indeterminate.
26. Which is the sustainability principle propounded by John Rawls?
a. An obligation to leave the world as we found it in detail
b. An obligation to leave to the future the nondeclining value of capital
c. An obligation to leave to the future the nondeclining value of natural capital
d. An obligation to leave to the future adequate amount of natural capital so that, at
the minimum, future generations would be no worse off than current generation
27. Solow's sustainability rule of leaving to the future nondeclining value of capital
requires/mandates
a. the current generation to reduce their rate utilization of natural resources.
b. the current generation to save and invest sufficiently to compensate for any loss of
natural and manmade capital.
c. preservation or nonuse of natural resources.
d. safe minimum standards of use of natural resources.
28. What is considered a depreciation of natural capital?
a. physical (quantitative) depletion of reserves of natural resources
b. degradation of quality of environmental resources
c. Both a and b
d. None of the above
29. The strong sustainability rule used by Pearce and Atkinson in their paper
"Measuring Sustainable Development" is an empirical method of ascertaining
whether countries are following a path of
a. non-declining value of total manmade and natural capital.
b. non-declining value of natural capital.
c. non-declining flow of essential physical services of critical natural resources.
d. None of the above.
30. Which argument Krutilla (1967) forwarded in his paper Conservation Reconsidered
to urge economists to reconsider conservation of natural resources/inputs?
a. The argument that the value of natural amenities is rising over time, as people are
learning their value from actually using them and experiencing their pleasures.
b. The argument that technological progress may not mitigate scarcity of rare and
unspoiled natural phenomena or resources.
c. The argument that even production of fabricated goods ultimately requires some
natural input.
e. All of the above were the arguments presented in Krutillas paper.

Answers
1a, 2a, 3b, 4d, 5a, 6a, 7b, 8c, 9c, 10a, 11b, 12a, 13b, 14a, 15a, 16d, 17a, 18c, 19b, 20c,
21a, 22d, 23b, 24c, 25a, 26d, 27b, 28c, 29b, 30d