University of Colorado at Boulder, Spring 2003Natural Resource Economics, Econ 4535-001Exam 1Answer all questions. Multiple Choice Questions1. What is meant by the option value of a resource?a. the value of preserving a resource for future generationsb. the unknown value of presently undiscovered dimensions of a biological resourcec. the value of living biological species in their own right, distinct from their value to human society d. the value of ensuring an opportunity to utilize a resource in the future2. Why people are likely to have option, discovery, and nonuse values of natural resources? a. because continued availability of resources in future is uncertainb. if a resource is depleted now, we may not be able to reverse the consequencec. technology may not be able to perfectly substitute unique resources if now extinctd. all of the above3. Which is correct?a. Non-human value is not included in a benefit-cost analysis. b. Existence value is not included in a benefit-cost analysis. c. Both a and b are correct. d. Both a and b are not correct.4. According to benefit-cost analysis, a project is recommended for implementation when its a. net present value (NPV)  0.b. net present value (NPV)  1.c. net present value (NPV) < 0.d. net present value (NPV) < 1.5. Is the benefit-cost ratio a reliable measure of ranking mutually exclusive projects? a. Yes, the highest benefit-cost ratio project is the most economically justified project.b. No, the highest benefit-cost ratio project is the most economically justified only when the ratio exceeds one. c. No, the highest investment project with the incremental benefit-cost ratio greater than one is the most economically justified project. d. No, all projects that have benefit-cost ratio larger than one are economically justified. 6. Private discount rates higher than that of society would a. slow extraction of resources below efficient level.b. accelerate extraction of resources above efficient level.c. not affect rate of extraction of resources.d. affect rate of extraction, but in unknown direction.7. Which does not explain why firms may have a higher discount rate than the society?c a. Some risks to individuals are not risks to society.b. Risks are concentrated to individuals, but are spread over a large population tosociety.c. Firms are interested in after-tax returns, whereas society in before-tax returns.d. Firms are interested in efficient extraction, but society in equitable extraction. 8. Two principal characteristics of the economics approach are ___________. a. Rationality (economizing behavior) and equity b. Anthropocentricity and equityc. Equity and efficiencyd. Rationality and anthropocentricity.9. Which is correct?a. Economic rent is the scarcity value of a resource that is in fixed supply.b. Increase in economic rent of a resource does not increase its quantity supplied. c. Economic rent of a resource increases as its demand increases.d. All of the above statements are correct.10. If people prefer present to future, why is it not efficient to extract the entire reserve ofan exhaustible resource now?a. It would always be efficient to extract the entire reserve now. b. Excessive extraction now would depress its marginal value, below the potential future marginal value resulting from increased future scarcity.c. It would always be efficient to extract equal quantities each year.d. None of the above is a satisfactory explanation.11. Assuming that there is a positive non-zero rate of time preference and that there are no changes in demand, costs, and technologies, which period is likely to get a larger share of a fixed amount of a resource under the dynamic efficient allocation?a. Present periodb. Future periodc. Both present and future periods get equal share.d. Present period may get larger or smaller share. 12. Which ensures dynamic efficient allocation of a fixed-supply resource?a. P=MECb. P=MUCc. P=MEC+MUCd. None of the above13. If MB exceeds MC at the current level of production, what is the appropriate economic response?a. Production should increase. b. Production should decrease. c. Production should remain unchanged. d. Comparison of MB and MC does not guide production decisions. 14. Which correctly distinguishes market decisions from socially optimal decisions. a. There is no distinction between the two decisions, because private interests of decision makers drive both types of decisions. b. Private interests drive market decisions, whereas public, or collective, interests determine socially optimal decisions. c. Private interests determine socially optimal decisions, whereas public interests drive market decisions.d. There is no distinction between the two decisions, because public interests determine both types of decisions. 15. Which is not correct?a. Non-rivalry is a characteristics of public goods.b. Non-rivalry is a characteristics of open-access resources.c. Non-exclusiveness is a characteristics of public goods.d. Non-exclusiveness is a characteristics of open-access resources.16. Which case of market failure is a conservationist likely to tolerate?a. monopolistic utilization of natural resourcesb. negative externalities c. utilization of open-access resources with no curtailment of accessd. all of the above17. When is user charge (charging a price for use or consumption) not enforceable?a. When the resource is non-rival in characteristicsb. When the resource is rival in characteristicsc. When the resource is exclusive in characteristicsd. When the resource is non-exclusive in characteristics18. Rational voter ignorance refers to e. voters ignoring personal benefits and costs of being informed on issues.f. voters ignoring only personal costs of being informed on issues.g. voters not showing interest in voting, irrespective of personal benefits or costs of being informed on issues.h. voters choosing to remain uninformed on issues, because personal costs of being informed exceed personal benefits.19. Which is not true of the anthropocentric economics approach? a. Natural resources are sources of raw materials and amenities.b. Natural resources are instruments to satisfy human preferences.c. Value of natural resources is independent of human preferences.d. All of the above statements are not true of the economics approach.20. In the efficient path of dynamic extraction, how would the rent () of an in-situ resource in the stock market compare with the net price (P-MEC) of the resource in the flow