Midterm 3
Study Guide
CED 201
Spring 2025
Format
The exam will consist of:
• 20 multiple-choice questions that will be two (2) points each.
• 6 short answer questions that will be ten (10) points each.
Topics Covered
All the material on the exam will come from either:
• The textbook (Chapters 16 and 20).
• Callan and Thomas papers (chapters) on defining air and water quality.
• Land chapter by Tietenberg and Lewis.
• All lectures and discussions we had in class on air quality, water quality and quantity, and
land.
Topics for the Short Answer Questions
1. The primary objective of any water quality trading program is to meet or exceed the
pollution requirements defined by the program at the lowest possible cost. Based on the
discussion in class and the information in the Fisher-Vanden and Olmstead (2013) paper,
what are the five conditions impacting the success of most water quality trading programs?
Please discuss how limiting the spatial extent of trades to a sub-watershed, as enforced by
the EPA, is likely to limit the success of any trading program.
2. How can inter-sector (e.g., agriculture to urban) water markets increase economic
efficiency? What are the main conditions for these markets to take off? (These conditions
will follow from the discussion about the Colorado Big Thompson Project.)
3. Understand and be able to explain the economic intuition as to why the second Renewable
Fuel Standard (ethanol blending) led to increased land use (extensive margin) for farming
and increases in greenhouse gas emissions.
4. Marginal damages from air pollution are assumed to be heterogeneous, implying that the
benefits from a policy designed to reduce them may not be uniform in the population. This
heterogeneity in marginal damages may result from either: (i) nonlinear responses of
damages to changes in exposure or (ii) differences in baseline socioeconomic status. How
does knowing which of these is true impact the type of policy that is implemented? If a
policy is implemented that reduces exposure uniformly across all people and pollution is
negatively correlated with socioeconomic status, is this policy progressive or regressive?
(This is the actual question that will be on the examine. To help formulate your answer,
, please look at the Hsiang et al. (2019) paper (“The Distribution of Environmental
Damages”) in the Misc folder on CANVAS. You can focus on pages 83-87 to help write
your response.)
5. Be able to describe a figure showing that forcing all water reductions in the urban
residential sector to come from outdoor water use is likely to lead to a deadweight loss
except in cases where indoor water demand is perfectly inelastic. (The figure and
information for this question is based on slide 19 from the Water Quantity lecture that
Praharsh presented in class; that figure and its explanation comes from the Mansur and
Olmstead (2012) paper that located in the Misc folder on CANVAS.)
6. Be able to define own-price elasticity and explain why knowing it is important for
environmental policymaking. Would you expect short-run, own-price elasticity of demand
to be higher or lower than the long-run, own-price elasticity? Why?
Study Guide
CED 201
Spring 2025
Format
The exam will consist of:
• 20 multiple-choice questions that will be two (2) points each.
• 6 short answer questions that will be ten (10) points each.
Topics Covered
All the material on the exam will come from either:
• The textbook (Chapters 16 and 20).
• Callan and Thomas papers (chapters) on defining air and water quality.
• Land chapter by Tietenberg and Lewis.
• All lectures and discussions we had in class on air quality, water quality and quantity, and
land.
Topics for the Short Answer Questions
1. The primary objective of any water quality trading program is to meet or exceed the
pollution requirements defined by the program at the lowest possible cost. Based on the
discussion in class and the information in the Fisher-Vanden and Olmstead (2013) paper,
what are the five conditions impacting the success of most water quality trading programs?
Please discuss how limiting the spatial extent of trades to a sub-watershed, as enforced by
the EPA, is likely to limit the success of any trading program.
2. How can inter-sector (e.g., agriculture to urban) water markets increase economic
efficiency? What are the main conditions for these markets to take off? (These conditions
will follow from the discussion about the Colorado Big Thompson Project.)
3. Understand and be able to explain the economic intuition as to why the second Renewable
Fuel Standard (ethanol blending) led to increased land use (extensive margin) for farming
and increases in greenhouse gas emissions.
4. Marginal damages from air pollution are assumed to be heterogeneous, implying that the
benefits from a policy designed to reduce them may not be uniform in the population. This
heterogeneity in marginal damages may result from either: (i) nonlinear responses of
damages to changes in exposure or (ii) differences in baseline socioeconomic status. How
does knowing which of these is true impact the type of policy that is implemented? If a
policy is implemented that reduces exposure uniformly across all people and pollution is
negatively correlated with socioeconomic status, is this policy progressive or regressive?
(This is the actual question that will be on the examine. To help formulate your answer,
, please look at the Hsiang et al. (2019) paper (“The Distribution of Environmental
Damages”) in the Misc folder on CANVAS. You can focus on pages 83-87 to help write
your response.)
5. Be able to describe a figure showing that forcing all water reductions in the urban
residential sector to come from outdoor water use is likely to lead to a deadweight loss
except in cases where indoor water demand is perfectly inelastic. (The figure and
information for this question is based on slide 19 from the Water Quantity lecture that
Praharsh presented in class; that figure and its explanation comes from the Mansur and
Olmstead (2012) paper that located in the Misc folder on CANVAS.)
6. Be able to define own-price elasticity and explain why knowing it is important for
environmental policymaking. Would you expect short-run, own-price elasticity of demand
to be higher or lower than the long-run, own-price elasticity? Why?
