Question 1

"Conflict diamonds" refer to the diamonds

Accepted Answer

Conflict diamonds, also known as blood diamonds, are diamonds mined in war zones in Africa and sold illegally to finance armed conflict against governments. These diamonds have been associated with human rights abuses, including forced labor, slavery, and child labor.

Question 2

The use of present value calculations in valuing natural resources is important because it

Accepted Answer

Present value calculations take into account the time value of money, which means that the value of future benefits and costs are discounted to their present value. This is important when valuing natural resources because it helps ensure that resources are allocated to their most efficient use over time. By discounting future benefits, it helps to avoid over-extraction of resources in the present, and instead prioritize sustainable consumption over time. This aligns with the goal of resource conservation and preservation.

Question 3

The user cost of nonrenewable resources is

Accepted Answer

The user cost of nonrenewable resources is the opportunity cost of extracting and selling the resource today instead of in the future. This means that the user cost is related to the foregone benefits that could have been obtained by keeping the resource in the ground and using it in the future, rather than extracting and selling it now. Therefore, Option C is the correct choice.

Question 4

Which of the following is the best example of a market failure to conserve a resource resulting from poorly defined property rights?

Accepted Answer

Poorly defined property rights in Africa have historically led to overhunting and poaching of elephants, as there is little incentive for individuals to conserve them when they do not own the resource or benefit directly from its preservation.

Question 5

An oil company is considering drilling in the Gulf at a current cost of $300,000 with an expected profit of $500,000 in three years. The current market rate is 10 percent. Should the company make the investment?

Accepted Answer

To determine whether the investment is worthwhile, we need to compare the present value of the expected profit to the present value of the cost. We can use the formula:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

In this case, the cost is $300,000, which is the present value. The expected profit in three years is $500,000, but we need to discount it back to its present value using the market rate of 10 percent. Using the formula:

PV = $500,000 / (1 + 0.10)^3 = $383,542.16

Since the present value of the profit ($383,542.16) is greater than the present value of the cost ($300,000), it is worthwhile for the oil company to make the investment. Therefore, the answer is C.

Question 6

Consider an oil company that can pump oil from a reserve either this year or next year. As expected future profits decrease, the extraction quantity this year

Accepted Answer

The answer of Consider an oil company that can pump...

Question 7

A mining company's extraction costs curve is

Accepted Answer

As the mining company extracts more resources, it will need to invest in more intensive extraction techniques, such as deep mining, which leads to higher marginal extraction costs. As a result, the extraction costs curve will be upward-sloping.

Question 8

If users can benefit from conservation, resources will be

Accepted Answer

If users can benefit from conservation, they will have a vested interest in preserving and using resources sustainably, rather than extracting them at a fast rate or overusing them. This will ultimately lead to resources being preserved for future use.

Question 9

When diamonds are mined in conflict or war-torn areas, there is

Accepted Answer

When diamonds are mined in conflict or war-torn areas, there can be a strong incentive for overmining as there is typically a lack of regulation and oversight. This can lead to environmental damage and depletion of the resource.

Question 10

Consider a coal mining company that can mine coal this year or next year. As expected future profits increase, the extraction quantity this year

Accepted Answer

As expected future profits increase, the opportunity cost of extracting coal this year (user cost) rises because the company foregoes higher profits in the future by extracting now. Therefore, the company is likely to decrease extraction this year to take advantage of higher future profits.

Question 11

The goal of profit-maximizing extraction firms such as an oil company or a mining company is to extract resources

Accepted Answer

Profit-maximizing extraction firms aim to maximize their profits over time, which means they need to find a balance between extracting resources quickly enough to meet demand, but not so quickly that it reduces future profitability. Therefore, the best choice is option D - extracting resources for the greatest stream of profit over time.

Question 12

At any level of a mining firm's output, total cost will be equal to extraction costs

Accepted Answer

Total cost in mining includes both the direct extraction costs and the opportunity cost of depleting the resource, known as user costs.

Question 13

In the case of extraction of a nonrenewable resource, when user costs decrease, then it implies that expected future profits

Accepted Answer

The answer of In the case of extraction of a...

Question 14

Overextraction of a resource in the present can occur because

Accepted Answer

Property rights provide incentives for individuals to conserve resources and use them in a sustainable manner. In the absence of clearly defined property rights, there is a tragedy of the commons, where individuals may overuse or deplete resources because they do not bear the full costs of their actions. Therefore, overextraction of a resource in the present can occur when property rights are not clearly defined.

Question 15

One major reason why the survival of elephants is threatened is that

Accepted Answer

There is a lack of incentive for elephant preservation, as elephants are not seen as economically valuable by local communities and governments. This leads to habitat destruction, poaching, and other threats to their survival.

Question 16

If the property rights for forests are clear and enforced, then

Accepted Answer

If property rights for forests are clear and enforced, then the owners have profit incentives to harvest slowly over time. This leads to sustainable management of the forest, ensuring that logging does not occur at an unsustainable rate. Option A is incorrect as clear and enforced property rights prevent the forests from becoming common property. Option B is also incorrect as governments may still overtax the forest regardless of clear property rights. Option D is incorrect as clear and enforced property rights ensure sustainably managed forests.

Question 17

An energy company has recently discovered a natural gas reserve. The company can tap this reserve at a cost of $350,000 and obtain a profit of $450,000 in three years. The current market rate is 15 percent. Should the company make the investment?

Accepted Answer

The answer of An energy company has recently discovered a...

Question 18

A logging company is considering logging an area for a current cost of $500 per acre to obtain a profit the next year of $600 per acre. The market rate of interest is 10 percent. Should the company make the investment?

Accepted Answer

The present value of the profit ($600) discounted at 10% is $545.45, which is greater than the cost of $500 per acre.

Question 19

In the case of extraction of a nonrenewable resource, when user costs increase, it implies that expected future profits

Accepted Answer