Practice Questions for Quiz 4

Practice Questions for Quiz 4

Water Resources

1. What is static and dynamic efficiency in water use?

1. What is sustainable water use?

1. What is the difference between surface flow and groundwater? Why do we care more about static efficiency for surface flow?

1. What is sustainable groundwater use? Suppose the annual recharge is given by

where R = annual recharge, z = annual rainfall, y = water used, and is the fraction of water used that returns to the aquifer.

Calculate the sustainable amount of groundwater use.

1. Explain how a market for surface flow of water can achieve static efficiency? What problems might arise in a surface flow market?

1. Suppose the government has established the sustainable amount of annual groundwater use. If water in the aquifer is an open access water, explain why the aquifer will be depleted.

1. Suppose the government has established the sustainable amount of annual groundwater use, and has metered each well so the user must pay for water. Use a graph to show how a regulated price can ensure that only the sustainable amount is used and static efficiency is achieved. Explain why changes in demand can cause problems with a regulated price of groundwater.

1. Suppose the government meters each well and establishes tradable property rights to pumping from the well. Explain how this will ensure the sustainable amount of water is used and static efficiency is achieved. How will this groundwater market respond to a change in demand?

1. Suppose desalinated water can be supplied at a constant marginal cost. Show that a regulated price equal to the marginal cost of desalinated water ensures static efficiency.

1. Assuming people can transfer water from groundwater users to desalinated water users at zero cost, use a graph of both groundwater and desalinated water to show that the regulated price of groundwater should equal the marginal cost of desalinated water to ensure static efficiency. What should be the price of groundwater if there is a cost of transferring water between groundwater and desalinated water users?

Fisheries

1. Draw a graph showing the sustainable catches of fish at different sizes of the fish population. Show the maximum sustainable catch.

1. Draw a graph that shows for alternative levels of effort spent fishing and a constant market price of fish the total benefits associated with fishing. Show the level of effort giving the maximum sustainable catch.

1. Assuming a constant marginal cost of fishing, use the graph from question 12 to show the optimal amount of fishing effort. Will the optimal catch be more than or less than the maximum sustainable catch? Explain your answer.

1. Show that if a fishery is privately owned, the amount of effort will equal the (static) efficient outcome?

1. Show that if a fishery is an open access resource, the amount of effort will be too large, resulting in zero net benefit of fishing.

1. Explain the following methods that have been used to control fishing access and explain whether they have been successful.

1. Aquaculture
2. Raising the real cost of fishing. Imposing taxes of fishing.
3. Individual Transferrable Quotas
4. Subsidies and Buybacks
5. Marine Protected Areas and Reserves