Problem 1
The long-run downward trend in commodity prices is consistent with the idea that: a. We are quickly running out of resources. b. Resource demands have been increasing faster than resource supplies. c. Birthrates will soon increase due to the falling cost of living. d. Resource supplies have increased faster than resource demands.
Problem 2
It would cost the town of Irondale \(\$ 50\) million to build a gaspowered generator that could produce a maximum of 5 megawatts of electricity at 15 cents per hour. Another alternative would be for Irondale to build a \(\$ 100\) million coal-fired generator that could produce a maximum of 15 megawatts of electricity at 5 cents per hour. Irondale should: a. Build the coal-fired generator because its hourly operating costs are so much lower. b. Build the gas-powered generator since it is less expensive to build. c. Build the coal-fired generator because, while it would cost twice as much to build, it would produce three times as much electricity. d. Obtain more information before deciding what to do.
Problem 3
After mining 9,273 tons of coal, Blue Sky Mining's managers note that the marginal cost of mining the next ton of coal would be \(\$ 40\) per ton. They also calculate that the user cost of mining that next ton of coal would be \(\$ 35 .\) If the market price of coal is \(\$ 72,\) should Blue Sky mine an additional ton of coal? a. Yes. b. No. c. More information is needed.
Problem 4
Good methods for helping to protect natural resources include: a. Establishing property rights and giving them to local users. b. Encouraging first-come, first-served property rights. c. Teaching people to consider user cost. d. Having the government set up and enforce ITQs.
Problem 5
Ingvar and Olaf are the only two fishermen in their area. Each has been assigned an ITQ that allows him to catch 20 tons of salmon. Ingvar's \(\mathrm{MC}\) of catching salmon is \(\$ 6\) per ton while Olafs MC of catching salmon is \(\$ 7\) per ton. If the price of salmon is \(\$ 10\) per ton, then to maximize efficiency, the two guys should trade ITQs until Ingvar is in charge of catching _____ tons while Olaf catches ____ tons. a. \(20 ; 20\) b. \(30 ; 10\) c. \(40 ; 0\) d. \(0 ; 40\)
