University of Colorado at Boulder, Fall 2006Natural Resource Economics Econ 4535Instructor: Vijaya Sharma, Ph.D.Exam 3Answer all 45 multiple-choice questions, each worth one point. 1. Marginal user cost of current utilization of a non-renewable resource is a. the price consumers pay to buy the resource. b. the marginal cost of extraction of the resource. c. an out-of-pocket expense incurred by suppliers on top of cost of extraction to deliver the extracted resource to consumers. d. a potential net gain that could have been made by postponing current extraction of the last marginal unit of the resource to the next period. 2. What is meant by the option value of a resource? a. the value of preserving a resource for future generations b. the unknown value of presently undiscovered dimensions of a biological resource c. the value of living biological species in their own right, distinct from their value to human society d. the value of opportunity to utilize a resource in the future 3. What is meant by the existence value of a resource? a. the market value of consuming/using a biological resource b. the value of living biological species in their own right, distinct from their value to human society c. the value conferred by the survival of a biological resource, unrelated to current or future use of the resource, but reflection of human altruism or sympathy for the survival of species d. the unknown value of presently undiscovered dimensions of a biological resource 4. In the efficient path of extraction, how would the rent of an in-situ resource in the asset market compare with the net price (P-MEC) of the resource in the flow market? a. Rent would be higher than net price. b. Rent would be lower than net price. c. Rent would be equal to net price. d. There is no definite relationship between rent and net price. 5. Which will not decrease the price of an extracted non-renewable resource in the flow market? a. Technological improvements decreasing marginal cost of extraction b. Findings of new reserves c. Increase in discount rate d. Flow market getting less competitive6. Which is the likely outcome when zero discount rate, as opposed to a positive discount rate, is used to determine efficient extraction path of a non-renewable resource?a. It will result in lower resource prices.b. It will encourage finding of new reserves.c. It will shorten resource depletion time.d. It will prolong resource depletion time.7. Why is monopolist a friend of conservationists?a. Because monopolist sets price equal to the competitive level.b. Because monopolist sets price lower than the competitive level.c. Because monopolist extracts resource faster than competitive firms.d. Because monopolist extracts resource slower than competitive firms.8. Equimarginal principle for allocation of a fixed annual available quantity of wateris to find the allocation that a. equalizes marginal net benefit across all users of water. b. equalizes marginal net benefit of all users to zero. c. equalizes total benefit from the allocation to total cost of the allocation. d. makes the ratio of marginal benefit to marginal cost exceed one. 9. Reallocation of a gallon of water from User X to User Y comes at the expense of marginal net benefit that X could have derived from this water. This loss of marginal net benefit is known as a. marginal cost of supplying water. b. marginal user cost . c. vulnerability premium. d. none of the above. 10. Stumpage Value of a stand of tree is a. the value of timber in the stand: pV. b. the value of timber in the stand, minus the cost of harvesting the tree: (p – h) V. 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: (p – h) V - k. d. the value of timber in the stand, plus any non-timber value of the standing tree. 11. How long would a private forestry business wait to harvest a tree it has planted for one-time planting-harvesting business only? a. As long as the tree keeps growing in timber volume b. As long as the price of timber keeps rising c. As long as both a and b keep happening d. As long as the growth rate of timber volume plus the growth rate of price of timber exceeds the rate of discount.12. The site expectational value of a forest site refers to a. the sum of present values of net benefits that could be realized from future rotations of replanting and harvesting of trees at the site. b. the sum of present values of non-timber benefits that could be realized over time from trees standing at the site. c. the sum of present values of costs of replanting trees during future rotations ofreplanting and harvesting of trees at the site. d. the sum of present values of costs of harvesting in future rotations of replanting and harvesting of trees at the site. 13. What is correct about the rent of fish stock in a fishery? a. zero if the fishery is open access b. positive amount if the fishery is harvested at its maximum sustainable yield c. more than the amount in a or b above if harvest rate is set where marginal revenue of fishing efforts is equal to marginal cost of fishing efforts d. all of the above 14. Maximum sustainable yield (MSY) in a fishery is a. the economically efficient rate of catch of fish that maximizes rent of fish stock. b. the economically 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. 15. Is a fish species likely to become extinct if fish is harvested efficiently? a. Yes, when marginal cost of fishing effort is zero. b. Yes, when marginal cost of fishing effort is not zero. c. No, when marginal cost of fishing effort is not zero. d. No, even when marginal cost of fishing effort is zero. 16. In the reading Free Market Forestry, the author recommends allowing environmental activist organizations to bid for tree-cutting privileges in federal logging lands, even if they intend to leave trees standing. Is this recommendation consistent with economic perspective? a. No, this would raise the price of timber, as fewer trees would be cut when conservationists win bids. b. Yes, only conservation groups, and no logging companies, should be allowed in the bidding process because too many forests are already being denuded. c. Yes, this would encourage competition and bids would