Name: ______ID ______
Department of Economics, SUFFOLK UNIVERSITY
Jonathan Haughton
ECONOMICS 340: Economics of Energy and Natural Resources
SAMPLE MIDTERM EXAM
Please write your name and ID number above, and only your ID number on the blue answer book. The exam is designed to last 70 minutes; budget your time carefully. Please answer all of the questions.1.
About 30 years ago, Donella Meadows et al. wrote a Club of Rome report called Limits to Growth.
a. What predictions did the report make about the future course of
(i) natural resources;
(ii) population;
(iii) food; and
(iv) pollution.
b. What remedies did they, and others, suggest for the problems they saw ahead?
c. What does the Limits of Growth report have that is in tune with the prognostications of Thomas Malthus?
2.
For any four of the following concepts, explain the essential idea, giving an example if it helps to clarify the explanation.
a. The first law of thermodynamics.
b. The Coase theorem.
c. Public goods.
d. Market failure.
e. Positive consumption externality.
3.
Consider a distant, open-access fishery that is not (yet) biologically overfished.
a. Show and explain what would happen if technological change were to make fishing effort cheaper, and assuming that the fishery is still not biologically overfished after the change.
b. In the diagram in a., show the maximum profit point, and explain why that is where profit is maximized.
c. In an open access fishery, why is the profit-maximizing output not the point to which the industry will tend to move?
4.
Steel mills pollute.
a. Assume that a ton of steel sells for $150, and 90 million tons are produced annually. Show this price and output on a well-labeled demand and supply diagram.
b. You are told that the pollution costs of producing an extra ton of steel is $60. Use this information to show the deadweight loss on the diagram.
c. If firms have to pay for the pollution they cause, they will be obliged to charge a higher price to consumers. Is this good or bad, for society as a whole? Explain.
5.
Sachs and Warner find that the presence of abundant natural resources provides no guarantee that a country will become rich, and indeed may actually get in the way of economic development.
a. Why might natural resource abundance slow down economic development? [In other words, what are the mechanisms by which this might occur?]
b. On a diagram showing the demand and supply of foreign exchange, show and explain the effect of receiving a foreign exchange windfall (such as a large dollop of foreign aid).
6.
a. Tropical forests could be cut for timber, or left intact. If they are left intact, what services do they typically provide? [A simple list will be fine.]
b. Why are tropical forests more vulnerable to deforestation than temperate forests?
c. For the first 10 years, a tree remains too small to be useful. Then in year 11 it adds 100 kg. of usable wood, and continues to grow like this (i.e. adding 100 kg. of wood annually) for the next 35 years. Assuming no externalities, and supposing that the tree could be replanted and that you are a profit maximizer, at what age should you cut the tree? Your money would earn 5% interest if it were in a bank. Show your workings.
Econ 131: Mid-term exam, October 2000 Page 2 of 2