Environmental and Natural Resource Economics
Examination 2

These multiple choice questions are from the exam bank. If you believe one or more answers are not correct, then speak with the instructor. He is human and makes mistakes.

Lecture 6 - Nonrenewable Resources

1. When does Hotelling's Rule apply?

a) Applies to renewable resource that can be replenished.
b) To any natural resource that is depletable.
c) The relationship among GDP, scarce resources, and income.
d) The rule to derive the highest level of GDP that could be obtained while depleting the natural resource stock.

2. What does Hotelling’s Rule show?

a) The efficient exploitation of a non-renewable by a competitive industry.
b) A competitive industry could earn rents by extracting a depletable resource.
c) The extraction of a non-renewable natural resource, like gold, should cause the gold’s market price to increase at the discount rate
d) All answers above are correct.

3. What is the difference between Hoteling's Rule and Hubbert’s peak oil hypothesis?

a) Hoteling's Rule incorporates the depreciation of capital while Hubbert’s Hypothesis does not.
b) Hotelling’s Rule indirectly states that real market prices should increase as the resource is depleted while Hubbert’s Hypothesis states the change in market prices should be a “U” shape.
c) Hoteling Rule allows firms to adopt technology while Hubbert’s Hypothesis does not.
d) An economy could enter into a recession if the price for a critical resource drops too quickly.

4. Which factors are not included in Hotelling's Rule?

a) Technological improvements cause marginal extraction costs to fall over time.
b) Hotelling’s prices depend on the petroleum reserves being known and fixed.
c) Demand for petroleum can change.
d) All answers above are correct.

5. Which answer summarizes Hotelling’s Rule?

a) Competitive market forces lead to a decrease of scarcity rent of a finite, exhaustible resource that equal the interest rate.
b) Competitive market forces lead to increase in the interest rates for finite, exhaustible resource.
c) A monopoly market leads to a decrease in scarcity rent of renewable resources.
d) Competitive market forces will lead to an increase in scarcity rent of a finite, exhaustible resource that increases at the interest rate.

6. Harold Hotelling was a mathematical statistician and an influential economic theorist. His name is known to all statisticians because he introduced which of the following:

a) Hotelling's T-square Distribution.
b) Hotelling's Law.
c) Hotelling's Rule.
d) All of the above.

7. What is oil depletion?

a) The market petroleum price is initially high but falls once companies get the infrastructure in.
b) When production of petroleum begins to decline.
c) Violates Hotelling’s rule.
d) The dollars have been converted to real.

8. Why did Hubbert underestimate the U.S. oil production peak by 10 years?

a) Technology - companies became better at extracting oil, Companies also become better at locating new reserves.
b) The declining portion of the u-shaped petroleum production curve.
c) The petroleum discoveries become rarer and smaller, and petroleum depletion caused marginal extraction costs to increase.
d) All answers are correct.

9. Who is M. King Hubbert?

a) A famous chemist.
b) An economist.
c) A financial analytic.
d) A petroleum engineer.

10. What explains why the market petroleum price is initially high but falls once companies get the infrastructure in?

a) Many countries nationalize their petroleum production industries.
b) Political organizations do crazy things which may not maximize profits.
c) When the petroleum industry was young and expanding its infrastructure, petroleum companies discovered and developed new large petroleum reserves.
d) All OPEC members - government owns the petroleum resources.

11. Why did petroleum prices dramatically shoot up in 2005?

a) China and India are developing.
b) China has some petroleum resources, but is starting to import large quantities of oil.
c) India has few petroleum reserves and has to import most of its petroleum needs.
d) All answers are correct.

12. Why do petroleum companies have to drill deeper and develop wells from smaller reserves?

a) The monthly gold price is becoming more expensive.
b) Many of the large and easy fields have already been exploited.
c) The nominal price has not been adjusted for inflation.
d) The Euro plunged in value during the 2008 Financial Crisis.

13. What is the definition of a monopoly?

a) A market dominated by one seller.
b) A market dominated by one buyer.
c) A market with many buyers and sellers.
d) A market where the government supplies the product or service.

14. One answer below does not apply to a monopoly; which one?

a) A geographical location may restrict a monopoly’s market power.

b) A monopoly is the only supplier of the good or service.
c) Monopolies have no close substitutes for their products.
d) Monopolies have no barriers to entry or exit.

15. Which of the following applies to the monopolistic competitive model?

a) This market structure has few competitors.
b) This market structure has perfect competition.
c) This market structure has some economies of scale or a touch of monopoly power.
d) Government routinely intervenes in this market structure.

16. Which one of following is true about barriers to entry?

a) They are unimportant in preventing entry into an industry.
b) They make it extremely difficult for new firms to entry an industry.
c) They prevent existing firms in realizing economic profits.
d) They make it easy for new comers to enter a market.

17. Which of the following is required for a monopoly’s product?

a) Small firms can produce or supply the product.
b) The product has several close substitutes for the product.
c) The product is unique and has no close substitutes.
d) The products tend to have little value for consumers and society.

18. If a firm uses mass production technology for producing a product at low cost and this production level enables him to supply the entire market, then what is this called?

a) A legal barrier to entry.
b) A natural monopoly.
c) Monopoly power gained through control of a critical resource.
d) Unfair competition.

19. In general, monopolies tend to be bad. Which answer below does not apply to a monopoly?

a) Little competition limits the options to consumers.
b) Reduced competition results in allocative inefficiency.
c) Monopoly power may encourage rent seeking behavior.
d) Monopoly discourages people from using its products.

20. How does x-inefficiency apply to monopolies?

a) Monopolies have little incentive to minimize costs.
b) Employees have high levels of motivation in monopolies.
c) The consumers can direct monopolies to serve their interests.
d) Monopolies have too much competition.

21. What is it called when monopolies funnel campaign money to Congressmen and the Congressmen pass favor laws for the monopolies?

a) Rent seeking behavior.
b) Consumers are not able to direct monopolies to serve their interests.
c) Little competition limits the options to consumers.
d) All answers above are correct.

22. What happens if the resource is depleted?

a) Modern technology can provide faster extraction and recovery.
b) The natural resource is located only in one country.
c) Society switches to a backstop technology.
d) None of the answers above is correct.
23. What limits the use of backstop technology?

a) The higher costs.
b) Resistance from the public.
c) Government prohibits use of the backstop technology.
d) Backstop technology generates higher levels of pollution.

24. Which is the good example of backstop technology?

a) Diesel fuel for cars.
b) Solar panels as source of electricity.
c) Coal for heating.
d) Pesticides used in agriculture.


1. b 2. d 3. b 4. d 5. d 6.d
7. b 8. a 9. d 10.c 11.d 12.b
13. a 14. d 15. c 16. b 17. c 18. b
19. d 20. a 21. a 22. c 23. a 24. b


Lecture 7 - Waste Disposal and Recycling

1. What is waste disposal?

a) The re-use of wastes that are sold back to the customers.
b) The extraction of wastes from the ground.
c) Wastes that are sold to cattle ranchers to feed the cows.
d) Collection, transport, processing, recycling and disposal of wastes.

2. How does a flat fee impact waste disposal?

a) Provides incentives to decrease wastes.
b) Does not provide incentives to decrease wastes.
c) Many people resort to illegal dumping to avoid paying more money for their wastes.
d) The fee increases the recycling effort.

3. How is the market defined for waste disposal?

a) As an independent market.
b) As a derived demand.
c) As a derived supply.
d) None of the answers is correct.

4. What happens if consumers' income increases?

a) People pay additional fees for waste disposal.
b) People recycle more wastes.
c) People indirectly create less waste.
d) People indirectly create more waste.

5. Who usually owns and controls waste disposal facilities?

a) One or two large corporations.
b) Local governments.
c) The trucking industry, because they transport it from place to place.
d) Private companies and corporations.

6. How do the Japanese dispose of their wastes since they have little land for landfills?

a) The burn the wastes at incineration facilities.
b) They transport wastes to China, so China can use the waste to make products for the world.
c) They transport the wastes to Russia to bury it.
d) All above answers are correct.

7. Whom does a successful recycling program depends on?

a) A strong local government.
b) Consumers.
c) Conscientiousness corporations.
d) A good recycling company.

8. Which market structure in theory would use the least amount of recycled materials?

a) Competitive Market
b) Oligopoly
c) Monopoly.
d) Monopolistic Competitive.

9. An entity installs collection centers at various points and households a variety of trash cans and separate bins for recyclable materials. Which method is the government using to increase the recycling?

a) Government forces stores and companies to charge a deposit.
b) Government bans the waste.
c) Government imposes recycling labels on products.
d) Government or the public installs the infrastructure for recycling.

10. Many precious metals have always been recycled, especially the valuable ones like which ones?

a) Gold, platinum, and silver.
b) Aluminum, platinum, and silver.
c) Titanium, platinum, and gold.
d) Nickel, gold, and aluminum.

11. Which country is the world’s largest consumer of gold? This country buys about 25% of the world’s gold.

a). USA.
b) Italy.
c) Turkey.
d) India.

12. Which country is the world's top producer of silver?

a) Mexico.
b) India.
c) Peru.
d) Argentina.

13. What are the ways of reducing hazardous wastes?

a) Recycling.
b) Neutralization of an acid or base.
c) Pyrolysis.
d) All answers are correct.

14. Which industry is not a source of radioactive waste?

a) Spent nuclear fuel from nuclear power plants.
b) Processing from producing nuclear weapons.
c) The medical industry.
d) The car industry.

15. Why are land prices for brownfields very low even in good locations?

a) The land is contaminated and people do not want to buy it.
b) Uncertain how badly the brownfield is polluted. Buried surprises may be hidden on the land.
c) Owners could be sued in court, claiming the land made them sick.
d) All answers above are correct.

16. When was the term ‘brownfield’ invented?

a) 1986
b) 1945
c) 1992
d) 1990.

17. Who is not responsible to clean up superfund sites according to the EPA?

a) The current owner
b) A person who transported a hazardous substance, pollutant or contaminant to a site
c) A person who arranged for the disposal of a hazardous substance, pollutant or contaminant
d) All answers above are correct.

18. Which properties are defined as brownfields?

a) A vacant farm.
b) A superfund site.
c) Factory land.
d) All answers above are correct.


1. d 2. b 3. b 4. d 5. b 6. a
7. b 8. c 9. d 10. a 11. d 12. c
13. d 14. d 15. d 16. d 17. d 18. c


Lecture 8 - Energy Economics

1. What makes the petroleum market a unique market when compared to other markets?

a) Petroleum companies tend to be large conglomerate corporations.
b) Petroleum is a critical energy resource.
c) Petroleum companies are vertically integrated.
d) All answers are correct .

2. Why do many countries nationalize their petroleum industry?

a) Petroleum is a critical energy resource, and a large source of tax revenue.
b) Petroleum companies have strong political ties with government.
c) Government can manage the petroleum better than a private corporation.
d) Answers a) and b) are correct .

3. OPEC is a prominent example of a cartel. What is their strategy of manipulating the petroleum price?

a) They agree on how much oil each member will consume.
b) They agree on how much oil each member will produce.
c) They agree on how much oil each member will import.
d) They agree on how much oil each member will export.

4. What does it mean when petroleum companies are vertically integrated?

a) They extract, transport, refine and sell petroleum products directly to customers.
b) They tend to organize a cartel in order to make joint decisions.
c) They are conglomerate organizations that produce a variety of products and services.
d) They have strong political ties with government.

5. How do the regulated electricity and natural gas companies respond when the price for their services is set by government?

a) They have strong political ties with government
b) Investment is funded into the infrastructure and it could encourage companies to over invest in infrastructure to get higher rates of return and charge a higher price.
c) To prevent organization of cartels.
d) To prevent merging with petroleum corporations.

6. In the case of OPEC: OPEC’s higher prices cause more non-OPEC firms to enter the petroleum market, OPEC members have a strong incentive to cheat and secretly sell products, and consumers may drastically cut back their demand for petroleum. What is this called?

a) Reasons for organizing a cartel.
b) Source of an economic recession.
c) Obstacles to prevent collusion.
d) Obstacles to merge with natural gas companies.

7. Which products are made from petroleum?

a) Adhesives, and most plastics.
b) Fertilizers, detergents, solvents.
c) Cheap transportation fuels, like diesel fuel and gasoline.
d) All answers above are correct.

8. How do the ideas of Malthus apply to oil depletion?

a) The world is producing too much petroleum.
b) The world is running out of petroleum, which will lead to hunger and collapse of society.
c) A country does not produce any petroleum.
d) None of the answers above are correct.

9. What will happen, when the world hits the world oil peak?

a) Government intervention will be required, otherwise the economic and social implications will be chaotic.
b) Higher efficiency standards will be required to reduce demand for petroleum products and fuels.
c) Society needs a substantial time period to wean itself off of cheap petroleum fuels and products.
d) All answers above are correct.

10. How do real petroleum prices influence the economy?

a) If real oil price increases dramatically, then the economy grows slower.
b) If real oil price increases a little, then petroleum prices have little impact on the economy.
c) If real oil price decreases, then petroleum prices have no impact on the economy.
d) All answers above are correct.

11. According to the Backstop Technology for petroleum, which resource can be used to convert it into petroleum fuels using the direct liquefaction processes?

a) Water.
b) Petroleum.
c) Coal.
d) Uranium.

12. What is a backstop technology?

a) Technology that is available in vast quantities at the backstop price.
b) Technology that is unavailable in vast quantities at the given price.
c) Technology that is exhaustible.
d) There is no term as “backstop technology.”

13. Which countries are the biggest electricity producers in the world?

a) United States, China, Japan, Russia .
b) India, Korea, United States, China.
c) Russia, Japan, France, United States.
d) China, Korea, United States, Russia.

14. What is the voltage level for electric transmission lines?

a) 50,000 volts.
b) 200,000 volts.
c) 220,000 volts.
d) 110,000 volts.

15. What are the three regions where the power lines are connected together as a grid in the United States?

a) The North, West, and Alabama.
b) The South, East, and Oklahoma.
c) The East, West, and Texas .
d) The North, South, and Colorado.

16. What percentage of the heat energy is converted to electricity?

a) 30-45%.
b) 15-30%.
c) 50-75%.
d) 100-110%

17. Which country has the largest coal production in the world?

a) Russia.
b) China.
c) India.
d) United States.

18. Which country has the highest coal reserves in the world?

a) Russia.
b) China.
c) India.
d) United States.


1. d 2. d 3. b 4. a 5. b 6. c
7. d 8. b 9. d 10. d 11. c 12. a
13. a 14. d 15. c 16. a 17. 18. d


Lecture 9 - Alternative Energy and Green Technologies

1. Why does our society not use biofuels on a large scale?

a) They supplies are too great to be handled by our society.
b) They are more expensive than gasoline or diesel.
c) They are not work properly in our cars and trucks.
d) The evil petroleum companies control the government and do not want biofuels around.

2. Which of the fuels below is a substitute for diesel fuel?

a) Biodiesel.
b) Ethanol.
c) Butanol.
d) All answers above are correct.

3. What is a disadvantage of using ethanol as a substitute for gasoline?

a) Ethanol contains less energy by volume than gasoline.
b) Ethanol recycles greenhouse gases, thus potentially lowering them.
c) Ethanol helps boost incomes and prices for the farmers.
d) Ethanol can help reduce a country’s imports of petroleum.

4. What is/are the problem(s) of using electric cars on a large scale?

a) A country’s electrical transmission system may not handle the extra power required.
b) Batteries are expensive and wear out in about five years.
c) Electric cars have short driving distances, as a battery’s charge is used up.
d) All answers above are correct.

5. Which of the following items below are sources to produce ethanol?

a) Sugar crops like sugar beets and sugarcane.
b) Crop and wood residues.
c) Starch crops like corn, wheat, and rice.
d) All answers above are correct.

6. More oxygen may allow fuels to burn cleaner. Which one of the following fuels contains no oxygen?

a) Butanol.
b) Biodiesel.
c) Ethanol
d) Diesel fuel.

7. Which percentage of the world’s electricity production is produced by hydroelectric power?

a) 15%.
b) 20%.
c) 2.0%.
d) 1.5%.

8. What is geothermal power?

a) Produces electricity from the wind.
b) Produces electricity from moving water.
c) Produces electricity from the heat from the earth.
d) None of the answers are correct.

9. Which one of the following is a problem of wind power?

a) Limitations where windmills can be placed.
b) If a wind stops blowing, then the wind farm stops generating electricity.
c) The variability of wind means wind could never be a dominant energy source.
d) All answers all are correct.

10. Which countries are the biggest inventors in solar energy?

a) France and Italy.
b) U.S.A. and China.
c) Germany and Spain.
d) South Korea and India.

11. Which country is the only country with breeder reactor?

a) Russia.
b) France.
c) China.
d) Japan.

12. Which substitute uses least percentage (%) of world electricity production?

a) Hydroelectric power.
b) Geothermal power.
c) Wind Power.
d) Nuclear energy.

13. What is carbon sequestration?

a) The production of carbon dioxide by cars.
b) The amount of carbon that is produced by burning one tree.
c) The amount carbon dioxide that is in the Earth’s atmosphere.
d) The removal and storage of carbon from the Earth’s atmosphere.

14. What is the process called where scientists and engineers are devising a way to reduce greenhouse gas emissions from coal burning power plants by capturing carbon dioxide before it is released into the environment?

a) Carbon allocation.
b) Carbon Dispersal.
c) Carbon sequestration.
d) Carbon reversal.

15. How can we increase carbon stored in forests?

a) Afforestation.
b) Deforestation.
c) Forest management.
d) Bioenergy.

16. What is terra preta?

a) The wastes are dumped into oceans.
b) Wastes are burned in incinerators.
c) Wastes are broken down by heat into carbon and mixed in soils.
d) None of the answers are correct.

17. The ocean is a major reservoir of which atmospheric gas?

a) Carbon dioxide.
b) Ozone.
c) Oxygen.
d) Nitrous oxide.

18. How can farmers change their tillage technology to reduce greenhouse gas emissions?

a) Farmers till the soil by turning the soil over and exposing it to air.
b) Farmers till the soil by boring a small hole into the ground to plant a seed.
c) Farmers build riparian buffers around their fields to reduce runoff.
d) None of the answers are correct.


1. b 2. a 3. a 4. d 5. d 6. d
7. b 8. c 9. d 10. b 11. a 12. b
13. d 14. c 15. a 16. c 17. a 18. b


Lecture 10 - Renewable Resources – Forests and Fisheries

1. Which paradox explains why resource-rich countries tend to grow more slowly than other poor countries, even after controlling for other variables?

a) Tragedy of Commons.
b) Dutch Disease.
c) The Coase Theorem.
d) The Porter Hypothesis.

2. Which country’s government is likely to give subsidies to clear forest and make new agricultural lands?

a) Algeria.
b) Egypt.
c) Poland.
d) Brazil.

3. Which technologies below may result in decline of fish populations?

a) Commercial trawlers - ships that use nets to scrape the bottom of the lake or ocean.
b) Specialized boats and fleets to catch a lot of fish and process the fish aboard.
c) Sonar systems to find the location of fish.
d) All of the answers above are correct.

4. Which is/are the unique feature of renewable resources?

a) The resource amount is determined by the biological growth and harvest rates.
b) The market structure has no influence on the resources.
c) Technology has no impact on renewable resources.
d) All of the answers above are correct.

5. Which of the following answers causes soil erosion, water quality problems, water shortages, loss of biodiversity, and increase of carbon dioxide emissions?

a) Deforestation.
b) Global Warming.
c) Sulfur dioxide emissions and acid rain.
d) The Dutch Disease.

6. Which one of the answers is not a characteristic of ownership of a renewable resource like fish that one person or organization owns?

a) Works well if it is a lake, but presents a problem for seas and oceans.
b) The person or organization could charge a fee to fish.
c) The fish becomes a property right.
d) Fishermen have the incentive to catch as many fish as possible.

7. Which factor(s) may cause deforestation?

a) War
b) Human settlements
c) Lack of property rights
d) All answers above are correct.

8. If the market price for fish becomes too high, what happens to the fish?

a) Fishermen over harvest the fish, causing fish populations to fall.
b) Fishermen under harvest the fish, causing the prices to increase further.
c) Fishermen under harvest the fish, causing their profits to increase and their cost to decrease.
d) Fishermen over harvest the fish, causing the fish populations to increase.

9. What are the possible government policies to reduce the problems with over fishing?

a) Prohibit and outlaw of catching and fishing of a particular species.
b) Restrict technology and require licenses for boats.
c) Prohibit catching and fishing during mating season.
d) All answers above are correct.

10. What are Individual Transfer Quotas (ITQ)?

a) Where government grants ownership of a lake to one person or organization.
b) Government restricts the catching and harvesting of fish during mating season.
c) A permit system for fish, where government sets the maximum harvest to an efficient level.
d) A special tax that is placed on fishermen’s boats and equipment.

11. If fish are an open-access resource, then fishermen’s profits are driven to:

a) The Maximum.
b) Zero.
c) Where Price = Net profit.
d) Open access does not have any effect on profits.

12. Which one is not a characteristic of government restrictions on fishing?

a) Fishermen expend lower costs for effort.
b) The harvest rates are higher because fish populations are higher.
c) Fishermen profits are higher than compared to open-access resource.
d) Fisherman profits are driven to zero.


1. b 2. d 3. d 4. a 5. a 6. d
7. d 8. a 9. d 10. c 11. b 12. d


Lecture 11 - Water Scarcity and Water Pollution

1. Which sector of the economy uses the highest percentage of water?

a) Agricultural.
b) Industrial.
c) Households.
d) Recreational.

2. Which technology creates drinkable water from saline water by passing the water through a permeable membrane?

a) Distillation.
b) Reverse osmosis.
c) Glacier water.
d) Riparian buffer.

3. Although water is a renewable resource, what situation causes a water reservoir to act like a depletable resource?

a) When the recharge rate exceeds the consumption rate of the reservoir.
b) When the recharge rate equals the consumption rate of the reservoir.
c) When the recharge rate is lower than the consumption rate of the reservoir.
d) None of the answers is correct.

4. What is the origin of dead spots in lakes, gulfs, and oceans where the water is devoid of oxygen?

a) Water runoff from cattle and poultry farms.
b) Water discharged from a wastewater treatment plant..
c) Water released from a city's storm drain system.
d) Water runoff from crop fields.

5. Which example below is a nonpoint source for water pollution?

a) The outlet pipe for a city's wastewater treatment plant.
b) The outlet pipe for a factory's discharge for its wastewater.
c) Water runoff from crop fields.
d) The outlet pipe for a city's storm drains.

6. Farmers may plant trees around irrigation ditches that slows down soil erosion and water runoff from the fields. What is this called?

a) A point source pollution.
b) Carbon sequestration.
c) A water permit system.
d) Riparian buffer.


1. a 2. b 3. c 4. a 5. c 6. d


Lecture 12 - Sustainability and the Future

1. What is the UNESCO's definition of sustainability?

a) “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
b) “an obligation to conduct ourselves so that we leave the future the option or the capacity to be as well off as we are.”
c) “…every generation should leave water, air, and soil resources as pure and unpolluted as when it came on earth.”
d) All answers above are correct.

2. What is "green GDP?"

a) Adjust a nation's GDP to include environmental damage.
b) Adjust a nation's GDP to include natural resource depletion.
c) Adjust a nation's GDP to include both environmental damage and natural resource depletion.
d) Adjust a nation's GDP for excessive debt and taxes.

3. What did Herman Daley say about sustainability for renewable resources like fish?

a) The harvest rate should be set equal to the net birth rate.
b) The harvest rate should be set less than the net birth rate.
c) The harvest rate should be set more than the net birth rate..
d) All answers above are correct.

4. What did Herman Daley say about pollution that degrades slowly, like greenhouse gases or nuclear waste?:

a) The amount of pollution generated should be set greater than the assimilative capacity of the environment..
b) The amount of pollution generated should be set less than the assimilative capacity of the environment.
c) The amount of pollution generated should be set to its greatest amount.
d) The amount of pollution generated should be set close to zero.

5. Which scarcity measure takes the rate of consumption and divide into the total amount of the resource available, in order to determine the life span of a natural resource?

a) Resource lifetime measure.
b) Measuring unit costs.
c) Real prices.
d) Economic rent

6. Which answer embodies the idea that firms will move from countries with strong environmental standards to those with weaker standards?

a) Pollution Haven Hypothesis.
b) Green GDP.
c) The Coase Theorem.
d) The Porter Hypothesis.


1. c 2. c 3. b 4. d 5. a 6. a