KEY Quiz 2, Economics 423, Fall 2006 (Prof. Hackett)

Please select any 2 of the 12 questions below that you do NOT want to answer, and cross out the whole question with a BIG X. Please provide the very best answer to the remaining 10 questions below:

1. Garrett Hardin coined the phrase Tragedy of the Commons, which refers to depletion of common-pool resources due to overuse or excessive harvest rates.

2. A common-pool resource has the characteristics of rivalry in consumption (subtractability) and difficulty in excluding multiple appropriators, while common property is an ownership regime in which a group of proprietors collectively govern a natural or constructed resource, as described by Elinor Ostrom.

3. Economically valuable ecosystem services, which are provided "for free" by nature, such as air and water purification, decomposition of wastes, and renewal of soil fertility, represent the beneficial flow from the stock of natural capital.

4. At a level of pollution reduction where marginal benefits equal marginal cost, we know that total net benefit is maximized, implying we are Kaldor-Hicks efficient.

5. If a job is similar to many others but (i) involves an annual risk of premature death on the job that is 0.0002 (2 per 10,000) higher, and (ii) pays a wage premium of $600 per year, then based on this data, the value of a statistical life is $ 3 million.

6. In an individual quota system fishermen are each given a share of total allowable catch, which eliminates the rule of capture externality.

7. In the case of scarce nonrenewable natural resources, the higher the discount rate the more rapidly the price of the resource rises over time, and the more rapidly the quantity of the resource allocated to each future period declines over time.

8. The contingent valuation method is the only way that economists have developed to measure the non-use value (e.g., existence value) of non-marketed aspects of the environment, like grizzly bear habitat, so that these values can be included in a benefit/cost analysis.

9. The travel cost method is a way of measuring recreational use value of non-marketed aspects of the environment, such as wilderness areas, so that these values can be included in benefit/cost analysis.

10. An example of a direct cost of compliance would be the money spent on smokestack scrubbers on coal-fired power plants.

11. In the space provided below, carefully draw a fully-labeled diagram showing the Gordon model (or, for students attending the 4^th unit lab, the model developed in the lab showing the open access and the group optimal steady state bioeconomic equilibria) of a marine fishery. Be sure to label all of your lines and curves.

Please see figure 5.6 on page 109 of the 3^rd edition of the course textbook.

12. Based on your diagram above, carefully and clearly indicate on the diagram the “open access” and the “group optimal” levels of effort. Very briefly provide a one or two sentence explanation of (i) why each of these equilibria occur, and (ii) the impact of the open access and the group optimal harvest on the fishery stock.

Please see accompanying narrative to figure 5.6 on page 109 of the 3^rd edition of the course textbook.