Economics (McConnell) AP Edition, 19th Edition

Chapter 15: Natural Resource and Energy Economics

Quiz

1
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:
A)Lena will increase her profits by selling her quota to Ole
B)Ole will increase his profits by selling his quota to Lena
C)Both Lena and Ole would like to sell their quotas on the open market
D)Both Lena and Ole would like to buy an additional 1000-ton quota on the open market
2
Per capita U.S. consumption of solids—plastics, metals, and the like—has:
A)increased since 1990, as measured by the extraction rates of ore and crude oil
B)increased since 1990, as measured by the increase in real GDP
C)decreased since 1990, as measured by the commodity price index
D)leveled off since 1990, as measured by per capita trash generation
3
Which of the following best explains the movement of the commodity price index over the last 100 years?
A)The index has fallen because the supply of commodities has increased faster than the demand for them
B)The index has fallen because the demand for commodities has increased faster than the supply of them
C)The index has risen because the supply of commodities has fallen while the demand has risen
D)The index has fallen because the demand for commodities has fallen while the supply has risen
4
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:
A)increase the current user cost of coal and increase the current rate of extraction
B)increase the current user cost of coal and decrease the current rate of extraction
C)decrease the current user cost of coal and increase the current rate of extraction
D)decrease the current user cost of coal and decrease the current rate of extraction
5
In attempting to minimize costs, a fundamental problem facing electricity generating companies is that:
A)power plants with the lowest operating costs per kilowatt hour tend to have the highest fixed construction costs
B)federal law limits mixing generator technologies in a given utility district
C)the prices of various energy sources is highly variable over the year, but the demand for them is stable
D)marginal cost exceeds average cost for all reasonable output levels
6
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:
A)mine the copper next year, since the market price may go up even further
B)mine the copper next year, since $4.10 exceeds $4.00
C)mine the copper today, since the present value of $4.10 received next year exceeds $4.00
D)mine the copper today, since $4.00 today could be invested and return $4.20 next year
7
Refer to the following diagram:

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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:
A)none of this resource, as the total cost of the resource exceeds $10
B)all of this resource, as the user cost is only $3, which is less than the market price
C)Q0 units of the resource, as the total cost of extracting units in excess of this amount exceeds the market price
D)Q1 units of the resource, as the user cost concept only applies to renewable resources
8
Refer to the following diagram:

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If the graph shows the typical growth pattern of a forest, forest companies will most likely harvest the trees at a time somewhere:
A)between 0 and T0
B)between T0 and T1
C)between T1 and T2
D)after T2
9
If a firm expects it might lose the property rights to a natural resource it currently controls:
A)its user cost will rise and it will decrease its current rate of extraction
B)its user cost will fall and it will decrease its current rate of extraction
C)its user cost will rise and it will increase its current rate of extraction
D)its user cost will fall and it will increase its current rate of extraction
10
The overall supply of energy is upsloping because:
A)some sources of energy, such as biodiesel, are more costly to produce than other sources, such as tar sands.
B)the higher the price of oil, the lower the amount demanded
C)increases in the price of energy increase the supply of energy
D)oil exporting countries regulate the price of oil to match consumer willingness to pay
McConnell Economics Nineteenth Edition Large Cover Image
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