Economics 309 Second Midterm Examination

Spring 2003, Professor Steven C. Hackett Answer Key

Please provide the very best answer to each of the questions below

Part I: Short Answer: Each question in Part I below is worth 5 points.

1. Suppose that you and nine other neighbors share two miles of road that used to be a logging road until the timber company sold the land to you and your neighbors. This road is a common-pool resource (CPR), and is owned collectively by you and your neighbors as common property. Briefly list those elements of Ostrom's design principles for sustainable self-governance of a local CPR that are relevant to this situation.

Clearly defined boundaries

Graduated sanctions (penalties in proportion to infraction)

(Maintenance and use) rules based on local conditions (congruence)

Collective choice arrangements (stakeholders have a say in rule formation and management)

Effective dispute resolution mechanism

Rights to self-govern road acknowledged by county, state, etc.

Monitoring and enforcement of maintenance and use

2. Suppose that a country experiences economic growth while at the same time shrinking its ecological footprint. How could this happen? Be brief and specific.

Dematerialization, use of less throughput, transition to vegetarian diet, use of public transportation and bicycles, use of policies or systems such as extended producer responsibility, ecological tax reform, industrial ecology, and design for the environment.

3. Suppose that 60 cents of every dollar spent in a local economy leaks out due to the use of imports. A new technology firm opens shop in the local community and generates $50 million in annual sales. Out of these sales, $20 million is initially injected into the local economy (the remainder flows out of the area). What is the total increase in annual local income created by this firm? Show your work.

Multiplier = 1/0.6 = 1.667

Total increase in annual local income = initial injection x multiplier

= $20 million x 1.667 = $33.33 million

4. With regard to question 3 above, describe two ways in which the total local income generated by this technology firm could be increased.

1. More import substitution (use of more local inputs by tech firm, consumption of a higher percentage of local goods and services by all consumers) ==> larger multiplier

2. Increased export sales by the tech firm ==> increased initial income injection

Part II: Matching: There is one unique match between a statement on the left and a description on the right. Write in the letter for the statement at the left that best matches the description at the right. Each question is worth 5 points.

Statement	Description
A. Weak Form Sustainability	1.__G__ True for countries that import most of their food, energy resources, and raw materials.
B. Structural Adjustment Programs	2.__B__ Program that redirected debtor country economies toward repayment of external loans.
C. A Country's Barter Terms of Trade Decline	3.__P__ Local economic development focused on firms that inject income from out-of-area sales.
D. Strong Form Sustainability	4.__K__ German Take Back program.
E. Makes Green GDP Larger	5.__M__ EU Flower.
F. Hotelling rent	6.__I__ Buying goods and services made outside the local economy.
G. Ecological Footprint > Carrying Capacity	7.__H__ Higher costs to society from crime.
H. Makes Genuine Progress Indicator Smaller	8.__R__ Why import substitution in small communities may result in higher prices.
I. Causes Income Leakage from the Local Economy	9.__U__ Increasing taxes on pollution and reducing taxes on employment and income.
J. Example of Industrial Ecology	10._O__ Over-harvest by one imposes a cost on all other resource users.
K. Example of an Extended Producer Responsibility Program	11._D__ Theory states that we cannot construct substitutes for natural capital.
L. Life Cycle Analysis	12.__N__ The World Bank.
M. Example of an Ecolabel Program	13.__A__ Filling in a wetland to build a school may be consistent with this form of sustainability.
N. International Development Lender	14.__C__ Occurs when export prices fall relative to import prices.
O. Appropriation Externality	15.__L__ inventory and assessment of a product's energy and material throughput and pollution emissions in production, distribution, use, recycling/reuse, and disposal .
P. Export Base Local Economic Development Focus	16.__J__ Gypsum from a power plant's smokestack scrubber is used to make sheetrock.
Q. Import Substitution Local Economic Development Focus
R. Economies of Scale in Production
S. Ecological Footprint < Carrying Capacity
T. Path Dependence
U. Ecological Tax Reform