1. At a market equilibrium, the marginal net benefit curve is ... 1) Horizontal 2) Vertical 3) Increasing 4) Decreasing 5) Maximized
2. Suppose a demand schedule is P = 100 - Q and a supply schedule is P = 20 + 2Q. What is the marginal net benefit curve? 1) MNB = 80 - Q 2) MNB = 80 - 3Q 3) MNB = 80 + Q 4) MNB = 120 - Q 5) MNB = 120 - 3Q
3. Suppose a demand curve is Q = 100 - P and a supply curve is Q = 0.5P - 25. What is the marginal net benefit curve? 1) MNB = 75 - 0.5Q 2) MNB = 125 - 1.5Q 3) MNB = 125 + 1.5Q 4) MNB = 50 + 3Q 5) MNB = 50 - 3Q
4. Total net benefits are maximized when marginal net benefits are ... 1) Maximized 2) Minimized 3) Zero 4) Equal to the discount rate 5) Equal to price
5. In a two time-period example, economic efficiency is maximized when ... 1) The marginal net benefits are maximized in both time periods 2) The discount rate is set equal to the marginal benefits 3) The marginal net benefit in the first time period is set equal to the present value of marginal net benefits in the second time period 4) The marginal net benefits in the first period are set equal to the discount rate in the second time period5) The marginal net benefits in the first period are set equal to the user costs in the second time period
6. Assuming economic efficiency is maximized, when will more of a resource tend to be used in the first time period (as compared to future time periods)? 1) Whenever the discount rate is positive 2) Whenever the marginal net benefits in the present are positive 3) Whenever the discount rate is zero 4) Whenever the user costs are positive in the present 5) Whenever the marginal net benefits in the future are negative
7. Costs imposed on future users of a resource are called ... 1) Transactions costs 2) Social costs 3) Private costs 4) Depletion costs 5) User costs
8. Under which one of the following conditions will economic theory indicate that a resource should be consumed in the current period? 1) When the discount rate is positive 2) When the marginal net benefits in the current period are greater than the marginal net benefits in the future 3) When substitute resources are available 4) When the marginal net benefits in the future are not discounted 5) When the users costs are positive
9. How do we adjust a current-period market graph to incorporate user costs? 1) Subtract the user costs from the supply curve 2) Add the user costs to the supply curve 3) Subtract the user costs from the demand curve 4) Add the user costs to the demand curve 5) Add the user costs to both the supply curve and the demand curve
10. User costs will be incorporated into a market if ... 1) Interest rates are positive 2) Discount rates are zero 3) Resource owners foresee future shortages 4) Government intervention is eliminated 5) Discount rates are positive
11. Which one of the following statements is false? 1) User costs can be incorporated in a market by imposing a resource depletion tax 2) Government intervention may not be necessary to internalize user costs 3) Users costs should always be set to zero to maximize economic efficiency 4) Incorporation of user costs will raise current prices 5) Consideration of user costs will reduce current production
12. Which one factor below does not influence how a resource should be allocated over time to maximize economic efficiency? 1) Guaranteeing sufficient supplies for future users 2) The discount rate 3) The future marginal net benefit curve 4) The current marginal net benefit curve 5) The supply of the resource
13. Which one of the following statements is false if we increase the discount rate used to allocate a resource? 1) The resource will tend to be used up quicker 2) The price of the resource will tend to rise faster 3) Current consumption of the resource will increase 4) The appropriate resource depletion tax will increase 5) Future supplies of the resource will decrease
14. In a two-period model, the same quantity of a resource will be used in both time periods ... 1) Whenever the discount rate is set equal to the rate price is increasing 2) Whenever the discount rate is zero and the marginal net benefit curves are equal 3) Whenever the discount rate is zero 4) Whenever the supply constraint is binding 5) Whenever Hotelling's rule applies 15. What economic theory tells us about the price of a non-renewable resource over time? 1) Hotelling's rule 2) Coase theorem 3) Pigovian rule 4) Cobb-Douglas theorem 5) Tragedy of the commons
16. Hotelling's rule states that ... 1) The net price of a resource is constant 2) The net price of a resource rises at a rate equal to the interest rate 3) The net price of a resource declines at a rate equal to the interest rate 4) The price of a resource depends on the allocation of property rights 5) The price of a resource is efficient as long as all user costs are internalized
17. Assuming Hotelling's rule applies to a resource market, which one of the following statements is false? 1) The price of the resource will rise over time 2) The per unit profitability of the extracting the resource will tend to rise over time 3) Interest rates will tend to rise 4) The current market price of the resource will include user costs 5) The interest rate will affect the production of the resource over time
18. Economic theory states that the optimal depletion rate will ... 1) Imply the extraction of all of a resource now as long as interest rates are positive 2) Increase as the discount rate is raised 3) Decrease as the discount rate is raised 4) Always ignore benefits to future generations 5) Always create excessive pollution
19. Which one of the following statements is true? 1) Discount rates should always be set to zero to maximize efficiency 2) Discount rates should be constant over time 3) The use of discount rates will always maximize future benefits 4) The use of discount rates becomes more problematic as longer time periods are considered 5) High discount rates promote resource conservation
20. If we are trying to maximize economic efficiency, which one of the following statements is true? 1) Reducing current consumption to save some resources for the future may be optimal 2) Maximizing current consumption is optimal 3) Consumption should always be divided equally among time periods 4) Consumption rates should rise at a rate equal to the rate of interest 5) Consumption rates in a time period are not related to interest rates