Question 1

Interest in environmental problems has intensified, perhaps because
A) for the first time in history in the 1970s people began to die from pollution-related diseases.
B) rising incomes have caused people to be more concerned with the quality of their lives.
C) the centrally planned economies are polluted.
D) All of the above are true.

Accepted Answer

As people's incomes rise, they tend to prioritize the quality of their lives, including the environment around them. While choice A is partially true in terms of causing concern about the environment, people have been aware of environmental problems for much longer than the 1970s. Choice C is not entirely accurate, as pollution occurs in both planned and market economies.

Question 2

Price controls would ordinarily be used to increase rather than decrease prices of depletable resources.

Accepted Answer

Price controls are typically used to decrease prices, not increase them. This is intended to make goods or services more affordable for consumers. However, in the case of depletable resources, such as oil or natural gas, governments may use regulations or taxes to increase prices in order to encourage conservation and the development of alternative energy sources.

Question 3

Unexpected discoveries of mineral reserves will ordinarily cause the price of these minerals to increase.

Accepted Answer

Unexpected discoveries of mineral reserves mean that there is an increase in the supply of minerals, which can lead to a decrease in price due to the increased competition among producers.

Question 4

Environmentalists, politicians, and economists have different perspectives on what constitutes appropriate environmental policy.Which of the following statements was probably made by an economist?
A) "We take the position that there are rights involved here, rights to be protected from threats to your health, regardless of the costs involved."
B) "Protecting the environment is so important that standards cannot be too high, and continuing improvements must be made regardless of cost."
C) "Pollution is a moral issue that cannot be reduced to dollars and cents."
D) "Clean air and water are things we can buy-if the price is right."

Accepted Answer

This statement emphasizes the idea that clean air and water can be acquired through purchasing, suggesting a focus on economic solutions to environmental problems.

Question 5

Economic theory would lead us to suspect that deep sea oil reserves would be accessed before those located in the Middle East or on the U.S.mainland.

Accepted Answer

Economic theory would actually lead us to suspect that Middle East oil reserves would be accessed before deep sea reserves due to the lower extraction costs and easier access to transport routes. Oil reserves on the U.S. mainland may also be accessed before deep sea reserves due to regulatory and environmental constraints on offshore drilling.

Question 6

In a free market the quantity demanded will not exceed the quantity supplied of a resource, even if it is undergoing rapid depletion.

Accepted Answer

The answer of In a free market the quantity demanded...

Question 7

If a depletable resource is selling in a perfectly competitive market, its price will rise by greater and greater dollar amounts each year.

Accepted Answer

The answer of If a depletable resource is selling in...

Question 8

Even if demand for a resource grows over time, ever-rising prices of the resource that result from its growing scarcity still discourage consumption.

Accepted Answer

As the resource becomes scarcer, its price increases which discourage consumption.

Question 9

Increased concern about environmental problems derive partly from
A) concerns about increasing economic output.
B) concerns about unemployment and inflation.
C) new awareness that the problems exist.
D) concerns about the quality of life.

Accepted Answer

The answer of Increased concern about environmental problems derive partly...

Question 10

The invention of new mining methods will affect price through the supply side.

Accepted Answer

The invention of new mining methods can increase the supply of the mined commodity and ultimately lead to lower prices due to increased competition.

Question 11

Price controls on resources generally lead to surpluses.

Accepted Answer

Price controls on resources usually lead to shortages, not surpluses. When the government imposes a price ceiling below the market equilibrium price, it leads to excess demand and a shortage of the resource. Suppliers may be unwilling or unable to sell the resource at the lower price, leading to a surplus of unsold resources.

Question 12

When a resource is being depleted and becomes scarce, the market's way of encouraging conservation is for the price of the resource to rise, without any government intervention.

Accepted Answer

This is the basic principle of supply and demand, where as the resource becomes scarcer, demand remains constant or can even increase, leading to an increase in price. As the price increases, consumers may reduce their consumption or seek alternatives, causing a decrease in demand, thus balancing the market.

Question 13

One of the conclusions of A.C.Pigou was that
A) a system of mandatory controls is the only effective means to control pollution.
B) a system of charges can be an effective means to control pollution.
C) pollution will wither away if a socialist system is in place.
D) pollution cannot be adequately addressed in a price system.

Accepted Answer

A.C. Pigou's conclusion was that a system of charges, also known as a "pollution tax" or "Pigouvian tax," can be an effective means of controlling pollution. This involves charging polluting individuals or firms for the damage they cause to the environment, which creates a financial incentive to reduce pollution levels. This approach is based on the idea that individuals and firms do not fully take into account the costs of their pollution, leading to overuse of environmental resources. By imposing a charge, the market is forced to internalize the costs of pollution and seek out more efficient and sustainable solutions.

Question 14

One of the virtues of rising resource prices is they encourage innovation, especially the discovery of other more abundant resources.

Accepted Answer

When resource prices rise, it becomes more profitable to explore and develop new, cheaper sources of the same resource or to find alternative resources. This incentivizes innovation and technological progress in the exploration and exploitation of resources.

Question 15

The worst and most difficult to extract resources are used first.

Accepted Answer

The easiest and least costly resources are usually used first, leaving the harder and more expensive resources for later.

Question 16

Rising prices of resources leads to inefficient resource use by industry.

Accepted Answer

Rising prices of resources typically encourage industries to use resources more efficiently or to find alternatives, as higher costs incentivize reducing waste and improving productivity to maintain profitability.

Question 17

Identify the economist who first addressed the environmental problem in terms of externalities.
A) Joseph Schumpeter
B) Maynard Keynes
C) A.C.Pigou
D) J.B.Say

Accepted Answer

A.C. Pigou was the economist who first addressed the environmental problem in terms of externalities. He introduced the concept of externalities in his book "The Economics of Welfare" published in 1920, which focuses on the need for government intervention to correct market failures caused by externalities.

Question 18

Economists use a resource's price as an indicator of its relative scarcity.

Accepted Answer

Economists use the law of supply and demand to determine the price of a resource, which reflects its relative scarcity. If a resource is in high demand but low supply, its price will be high, indicating its relative scarcity.

Question 19

Dwindling resources encourage the development of substitute products.

Accepted Answer

When resources become scarce or expensive, it becomes economically viable to develop substitute products to replace or supplement the original resources. This is often seen in industries such as energy, where renewable energy sources are being explored due to the finite supply of fossil fuels.

Question 20

The British economist A.C.Pigou
A) wrote The Economics of Welfare in 1911.
B) offered an explanation of the market economy's poor environmental performance.
C) outlined an approach to environmental policy still in favor with economists today.
D) All of the above are correct.

Accepted Answer

A.C. Pigou wrote The Economics of Welfare in 1911, in which he introduced the concept of externalities and offered an explanation of the market economy's poor environmental performance. He also outlined an approach to environmental policy, known as Pigouvian taxation, which is still in favor with economists today.

Quiz 17: Externalities, the Environment, and Natural Resources

Interest in environmental problems has intensified, perhaps because