Instructor:
John Whitehead
e-mail: whiteheadjc@appstate.edu
Exam #3 Study Guide
Multiple Choice Questions (50 points)
Key Terms:
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Short Answer Questions (50 points):
Answer 2 of 3 questions in one page or less. Each question requires a graphical
analysis.
Practice Questions
Using the two-period model of nonrenewable resource allocation, illustrate the effects of (a) future population growth and (b) exploration and discovery on the marginal user cost and the allocation of the resource over time. (c) What are the two components of the market price of the nonrenewable resource? (d) In each situation, what happens to the market price of the nonrenewable resource?
Using a diagram of the dynamic price path of a nonrenewable resource with a renewable backstop fuel, determine whether the “switch point” will occur sooner or later given the following situations: (a) a moral suasion policy aimed at conservation of the nonrenewable resource, (b) a subsidy for the renewable resource industry, (c) a pollution tax on the nonrenewable resource. (d) Define switch point and explain why it occurs.
Using a diagram of the bioeconomic model of the fishery, (a) define “tragedy of the commons”; illustrate the effects of (b) a gear restriction and (c) a tax on effort on the equilibrium level of effort. (d) Define rent. Which policy maximizes rent? Who earns the rent?
(a) Define optimal rotation. Using the diagram of the optimal rotation, illustrate the effects of the following on the length of the rotation: (b) an increase in nonharvest benefits of wilderness recreation, (c) an increase in the interest rate, (d) government subsidies that lead to below cost timber sales.