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1 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Suppose Ole and Lena each own a tradable quota that allows them to catch 1000 tons of salmon this year. Each owns a boat with a capacity of 2000 tons, but Lena's fishing cost is $2000 per ton while Ole's cost is $1800 per ton. If the market price of salmon is expected to be $2200 per ton and tradable quotas are currently priced at $250 per ton: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | Lena will increase her profits by selling her quota to Ole. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | Ole will increase his profits by selling his quota to Lena. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | Both Lena and Ole would like to sell their quotas on the open market. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | Both Lena and Ole would like to buy an additional 1000-ton quota on the open market. |
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2 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Per capita U.S. consumption of solids—plastics, metals, and the like—has: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | increased since 1990, as measured by the extraction rates of ore and crude oil. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | increased since 1990, as measured by the increase in real GDP. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | decreased since 1990, as measured by the commodity price index. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | leveled off since 1990, as measured by per capita trash generation. |
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3 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Which of the following best explains the movement of the commodity price index over the last 100 years? |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | The index has fallen because the supply of commodities has increased faster than the demand for them |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | The index has fallen because the demand for commodities has increased faster than the supply of them |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | The index has risen because the supply of commodities has fallen while the demand has risen |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | The index has fallen because the demand for commodities has fallen while the supply has risen |
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4 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Suppose a coal mining firm predicts that the demand for coal (and hence its price) will grow faster than previous forecasts had indicated. This change in outlook will: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | increase the current user cost of coal and increase the current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | increase the current user cost of coal and decrease the current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | decrease the current user cost of coal and increase the current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | decrease the current user cost of coal and decrease the current rate of extraction. |
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5 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) In attempting to minimize costs, a fundamental problem facing electricity generating companies is that: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | power plants with the lowest operating costs per kilowatt hour tend to have the highest fixed construction costs. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | federal law limits mixing generator technologies in a given utility district. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | the prices of various energy sources is highly variable over the year, but the demand for them is stable. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | marginal cost exceeds average cost for all reasonable output levels. |
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6 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Suppose you own property containing a small vein of copper ore. By mining and selling the copper today, you could get net benefits of $4.00 per pound. Alternatively, you could wait for one year and get net benefits at that time of $4.10 per pound. If the interest rate is 5%, you should: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | mine the copper next year, since the market price may go up even further. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | mine the copper next year, since $4.10 exceeds $4.00. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | mine the copper today, since the present value of $4.10 received next year exceeds $4.00. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | mine the copper today, since $4.00 today could be invested and return $4.20 next year. |
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7 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Refer to the following diagram:
![](/sites/dl/free/0073511447/883743/ch15_q7.jpg) (15.0K)
Suppose the current market price of this non-renewable resource is $10. Extraction costs are given by EC and the user cost is $3. In the first year, the firm depicted in the diagram should extract: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | none of this resource, as the total cost of the resource exceeds $10. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | all of this resource, as the user cost is only $3, which is less than the market price. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | Q0 units of the resource, as the total cost of extracting units in excess of this amount exceeds the market price. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | Q1 units of the resource, as the user cost concept only applies to renewable resources. |
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8 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Refer to the following diagram:
![](/sites/dl/free/0073511447/883743/ch15_q8.jpg) (11.0K)
If the graph shows the typical growth pattern of a forest, forest companies will most likely harvest the trees at a time somewhere: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | between 0 and T0. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | between T0 and T1. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | between T1 and T2. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | after T2. |
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9 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) If a firm expects it might lose the property rights to a natural resource it currently controls: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | its user cost will rise and it will decrease its current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | its user cost will fall and it will decrease its current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | its user cost will rise and it will increase its current rate of extraction. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | its user cost will fall and it will increase its current rate of extraction. |
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10 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The overall supply of energy is upsloping because: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | some sources of energy, such as biodiesel, are more costly to produce than other sources, such as tar sands. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | the higher the price of oil, the lower the amount demanded. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | increases in the price of energy increase the supply of energy. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | oil exporting countries regulate the price of oil to match consumer willingness to pay. |
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