Question 1

Melanie and Oli are competing Pacific halibut fishers. Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each. Melanie's cost per ton is $20; Oli's cost per ton is $25. If the market price of Pacific halibut is $35 per ton, and Melanie and Oli both catch their quota, their combined profit will be

Accepted Answer

Melanie's profit = (Market price - Cost per ton) * Quantity = ($35 - $20) * 1000 = $15,000. Oli's profit = (Market price - Cost per ton) * Quantity = ($35 - $25) * 1000 = $10,000. Combined profit = Melanie's profit + Oli's profit = $15,000 + $10,000 = $25,000.

Question 2

Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $7; Kyle's cost per ton is $11. Assume that the market price of sockeye salmon is $16 per ton. If Kara pays Kyle $6 per ton for his ITQs, and if she then catches her new limit of 4,000 tons, her profit would be

Accepted Answer

Kara's profit is calculated as follows: Revenue from selling 4,000 tons at $16 per ton is $64,000. Her cost for catching 4,000 tons at $7 per ton is $28,000. She pays Kyle $6 per ton for 2,000 tons, which is $12,000. Therefore, her total cost is $28,000 + $12,000 = $40,000. Her profit is $64,000 - $40,000 = $24,000.

Question 3

Encouraging conservation is especially difficult in the open ocean, where it is impossible to either define or enforce property rights over fish.

Accepted Answer

In the open ocean, the vastness and fluid nature of the environment make it challenging to establish and enforce property rights, which complicates efforts to manage and conserve fish populations effectively.

Question 4

In the extraction of a nonrenewable resource, increased current extraction will reduce the extraction firm's user costs.

Accepted Answer

Increased current extraction of a nonrenewable resource depletes the available reserves faster, thereby increasing the user costs for the extraction firm due to the reduced future availability of the resource.

Question 5

The table shows the quantity of gold bars in thousands, the extraction cost for each thousand bars (in millions of dollars), and the user cost of each thousand bars (in millions of dollars)facing the OZ Mining Company this year (all costs are marginal). If the current price of a bar of gold is $35,000, how many bars (in thousands)should OZ extract and sell this year in order to maximize profits?

Accepted Answer

The answer of  The table shows the quantity of...

Question 6

Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $8; Kyle's cost per ton is $12. If the market price of sockeye salmon is $15 per ton, and Kara and Kyle both catch their quota, their combined profit will be

Accepted Answer

Kara's profit = (15 - 8) * 2,000 = $14,000Kyle's profit = (15 - 12) * 2,000 = $6,000Combined profit = $14,000 + $6,000 = $20,000

Question 7

Studies by economists indicate that economic growth and rising living standards are good for the environment because, as societies get richer, they tend to spend more on things that improve environmental quality.

Accepted Answer

Economists have found that as societies become wealthier, they often have more resources to allocate towards improving environmental quality, a phenomenon described by the Environmental Kuznets Curve. This suggests that economic growth initially leads to environmental degradation, but after reaching a certain level of income, societies start investing in environmental improvements, leading to a decrease in pollution and better environmental stewardship.

Question 8

A fishery collapse happens when a fishery's population grows faster than fish can be harvested.

Accepted Answer

A fishery collapse occurs when fish populations decline significantly due to overfishing, environmental changes, or other factors, making the fishery unsustainable at its current level of exploitation.

Question 9

Definition of property rights is a key component to proper conservation of resources.

Accepted Answer

Property rights establish clear ownership, which incentivizes owners to manage and conserve resources efficiently, as they directly benefit from the resource's sustainability and value.

Question 10

Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $6; Kyle's cost per ton is $10. If the market price of sockeye salmon is $14 per ton, what is the maximum amount Kara would be willing to pay per ton for Kyle's ITQs?

Accepted Answer

Kara would make a profit of $8 per ton ($14 market price - $6 cost per ton). Therefore, she would be willing to pay up to $8 per ton for Kyle's ITQs to maintain her profit margin.

Question 11

Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $7; Kyle's cost per ton is $11. If the market price of sockeye salmon is $16 per ton, what is the minimum amount per ton that Kara would have to offer Kyle to convince him to sell Kara his ITQs?

Accepted Answer

Kara would need to offer Kyle more than his profit margin per ton to make it worthwhile for Kyle to sell his ITQs. Kyle's profit per ton is $16 (market price) - $11 (cost per ton) = $5. Therefore, the minimum Kara would have to offer is anything above $5 per ton.

Question 12

In the extraction of a nonrenewable resource such as coal, the mining firm faces "user costs," which refers to the cost of digging out the coal, running the mine, and transporting the coal.

Accepted Answer

User costs in the context of nonrenewable resource extraction, like coal, refer to the opportunity cost of depleting the resource now rather than in the future. It encompasses the value of the resource left in the ground, considering its potential future scarcity and price changes, rather than the operational costs of extraction and transportation.

Question 13

The price of harvesting a renewable resource does not affect when or how much of a renewable resource will be harvested.

Accepted Answer

The price of harvesting a renewable resource affects the economic viability and incentive for harvesting it, influencing both the timing and quantity of the resource that is harvested. Higher prices can encourage more immediate and extensive harvesting, while lower prices might reduce the incentive to harvest.

Question 14

If resource extraction companies can benefit from both present and future extraction, they will limit current extraction to only those units which are more profitable to extract in the present rather than in the future.

Accepted Answer

Resource extraction companies often engage in intertemporal decision-making, balancing the profitability of extracting resources now versus in the future. By limiting current extraction to units more profitable to extract presently, they can maximize their overall profits while ensuring sustainable resource availability for future extraction opportunities. This approach aligns with the economic principle of maximizing net present value, taking into account the time value of money and the potential for resource depletion or price changes.

Question 15

One of the worst systems for encouraging conservation of fisheries is the combination of total allowable catch (TAC)with individual transferable quota (ITQ).

Accepted Answer

The combination of Total Allowable Catch (TAC) and Individual Transferable Quotas (ITQs) is actually considered one of the better systems for encouraging conservation of fisheries. It sets a cap on the total amount of fish that can be caught (TAC) and allocates specific portions of that total to individuals or companies (ITQs), which can be traded. This system incentivizes sustainable fishing practices and conservation because it gives fishers a direct stake in the health of the fishery.

Question 16

Melanie and Oli are competing Pacific halibut fishers. Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each. Melanie's cost per ton is $26; Oli's cost per ton is $31. If the market price of Pacific halibut is $37 per ton, what is the maximum amount Melanie would be willing to pay per ton for Oli's ITQs?

Accepted Answer

Melanie would be willing to pay up to $11 per ton for Oli's ITQs because she makes a profit of $11 per ton ($37 market price - $26 cost per ton). Paying more would reduce her profit below her current rate.

Question 17

In the case of conflict diamonds, the strict enforcement of property rights has led to too fast of a rate of extraction.

Accepted Answer

Conflict diamonds, also known as "blood diamonds," are mined in war zones and sold to finance armed conflict against governments. The issue with conflict diamonds is not related to the enforcement of property rights leading to rapid extraction, but rather the lack of regulation and oversight that allows these diamonds to fund violence and exploitation.

Question 18

The table shows the quantity of gold bars in thousands, the extraction cost for each thousand bars (in millions of dollars), and the user cost of each thousand bars (in millions of dollars)facing the OZ Mining Company this year (all costs are marginal). Suppose that a new government regulation is going to shut down OZ's mining operation one year from now. If the current price per bar of gold is $20,000, how many bars (in thousands)should OZ extract and sell this year?

Accepted Answer

The answer of  The table shows the quantity of...

Question 19

The table shows the quantity of gold bars in thousands, the extraction cost for each thousand bars (in millions of dollars), and the user cost of each thousand bars (in millions of dollars)facing the OZ Mining Company this year (all costs are marginal). If the current price of a bar of gold is $25,000, how many bars (in thousands)should OZ extract and sell this year in order to maximize profits?

Accepted Answer

The answer of  The table shows the quantity of...

Question 20

If a country has a total fertility rate of 4.0, then, all else equal, we would expect

Accepted Answer

A total fertility rate of 4.0 means that, on average, each woman in the country is expected to give birth to 4 children during her lifetime. This rate is significantly higher than the replacement level fertility rate, which is approximately 2.1 children per woman in most countries. A fertility rate higher than the replacement level generally leads to population growth, assuming other factors such as mortality rates do not counteract this growth significantly.

Quiz 19: Natural Resource and Energy Economics

Encouraging conservation is especially difficult in the open ocean, where it is impossible to either define or enforce property rights over fish.

In the extraction of a nonrenewable resource, increased current extraction will reduce the extraction firm's user costs.

Studies by economists indicate that economic growth and rising living standards are good for the environment because, as societies get richer, they tend to spend more on things that improve environmental quality.

A fishery collapse happens when a fishery's population grows faster than fish can be harvested.

Definition of property rights is a key component to proper conservation of resources.

In the extraction of a nonrenewable resource such as coal, the mining firm faces "user costs," which refers to the cost of digging out the coal, running the mine, and transporting the coal.

The price of harvesting a renewable resource does not affect when or how much of a renewable resource will be harvested.

If resource extraction companies can benefit from both present and future extraction, they will limit current extraction to only those units which are more profitable to extract in the present rather than in the future.

One of the worst systems for encouraging conservation of fisheries is the combination of total allowable catch (TAC)with individual transferable quota (ITQ).

In the case of conflict diamonds, the strict enforcement of property rights has led to too fast of a rate of extraction.

If a country has a total fertility rate of 4.0, then, all else equal, we would expect