ECON 2100 UGA TEST 2 QUESTIONS & ANSWERS
Which of the following is an example of a secondary environmental benefit? - Answer -
higher worker productivity due to improved health
If an individual enjoys swimming in the ocean, the ocean provides direct user value to
the individual. (T/F) - Answer -true
If an individual receives utility from enjoying the view of a mountain range, that mountain
range is said to provide indirect user value to the individual. (T/F) - Answer -true
Vicarious consumption refers to the notion that - Answer -people gain utility knowing
that others receive gains from an environmental good
Physical linkage approach - Answer -Estimates benefits based upon a technical
relationship between environmental resource and user of resource
Behavioral linkage approach - Answer -Estimates benefits using observations of
behavior in actual markets or survey responses about hypothetical markets
The contingent valuation method uses surveys about hypothetical market conditions to
estimate willingness to pay (WTP) for environmental quality. Which of the following are
common drawbacks to using a survey approach?
(a) Survey participants may be unwilling to reveal WTP because of the free rider
problem.
(b) Survey participants may have difficulty assigning a dollar value to environmental
quality.
(c) Survey participants' WTP for an improvement in environmental quality can differ from
their WTA (willingness to accept) compensation for a reduction in environmental quality.
(d) A survey approach cannot capture existence value.
All of the above.
(a), (b), and (c) - Answer -(a), (b), and (c)
The averting expenditure method estimates benefits as the reduction in spending on
goods that are substitutes for a cleaner environment; whereas the travel cost method
estimates benefits as an increase in consumer surplus in the market for a complement
to environmental quality as policy improves that quality. (T/F) - Answer -true
, A disadvantage of the travel cost method is
(a) it cannot determine user value
(b) it cannot determine existence value
(c) it focuses on recreational use making it ineffective for commercial use
all of the above
(b) and (c) only - Answer -(b) and (c) only
The hedonic price method uses regression analysis to obtain estimates of the implicit
prices of individual attributes, including environmental quality. The hedonic price method
requires complex empirical modeling, extensive data, and variation across data points.
(t/f) - Answer -true
(T/F) When implementing environmental policy, explicit costs include administrative,
monitoring, and enforcement expenses paid by the public sector plus compliance costs
paid by all economic sectors. - Answer -true
Variable spending arising as part of the operation and maintenance of abatement
processes is known as
a. fixed costs
b. implicit costs
c. capital costs
d. operating costs - Answer -d. operating costs
(T/F) The value of reduced product variety due to an environmental policy initiative or
regulation is an example of an implicit cost. - Answer -True
The time cost incurred by consumers who must find substitute products after a ban is
placed on some good or service is an example of a(n)
A. capital cost
B. fixed cost
C. implicit cost
D. explicit cost
E. operating expense - Answer -Implicit cost
Incremental cost assessment involves
A. valuing Total Social Cost (TSC) at a single level of abatement
Which of the following is an example of a secondary environmental benefit? - Answer -
higher worker productivity due to improved health
If an individual enjoys swimming in the ocean, the ocean provides direct user value to
the individual. (T/F) - Answer -true
If an individual receives utility from enjoying the view of a mountain range, that mountain
range is said to provide indirect user value to the individual. (T/F) - Answer -true
Vicarious consumption refers to the notion that - Answer -people gain utility knowing
that others receive gains from an environmental good
Physical linkage approach - Answer -Estimates benefits based upon a technical
relationship between environmental resource and user of resource
Behavioral linkage approach - Answer -Estimates benefits using observations of
behavior in actual markets or survey responses about hypothetical markets
The contingent valuation method uses surveys about hypothetical market conditions to
estimate willingness to pay (WTP) for environmental quality. Which of the following are
common drawbacks to using a survey approach?
(a) Survey participants may be unwilling to reveal WTP because of the free rider
problem.
(b) Survey participants may have difficulty assigning a dollar value to environmental
quality.
(c) Survey participants' WTP for an improvement in environmental quality can differ from
their WTA (willingness to accept) compensation for a reduction in environmental quality.
(d) A survey approach cannot capture existence value.
All of the above.
(a), (b), and (c) - Answer -(a), (b), and (c)
The averting expenditure method estimates benefits as the reduction in spending on
goods that are substitutes for a cleaner environment; whereas the travel cost method
estimates benefits as an increase in consumer surplus in the market for a complement
to environmental quality as policy improves that quality. (T/F) - Answer -true
, A disadvantage of the travel cost method is
(a) it cannot determine user value
(b) it cannot determine existence value
(c) it focuses on recreational use making it ineffective for commercial use
all of the above
(b) and (c) only - Answer -(b) and (c) only
The hedonic price method uses regression analysis to obtain estimates of the implicit
prices of individual attributes, including environmental quality. The hedonic price method
requires complex empirical modeling, extensive data, and variation across data points.
(t/f) - Answer -true
(T/F) When implementing environmental policy, explicit costs include administrative,
monitoring, and enforcement expenses paid by the public sector plus compliance costs
paid by all economic sectors. - Answer -true
Variable spending arising as part of the operation and maintenance of abatement
processes is known as
a. fixed costs
b. implicit costs
c. capital costs
d. operating costs - Answer -d. operating costs
(T/F) The value of reduced product variety due to an environmental policy initiative or
regulation is an example of an implicit cost. - Answer -True
The time cost incurred by consumers who must find substitute products after a ban is
placed on some good or service is an example of a(n)
A. capital cost
B. fixed cost
C. implicit cost
D. explicit cost
E. operating expense - Answer -Implicit cost
Incremental cost assessment involves
A. valuing Total Social Cost (TSC) at a single level of abatement
