Environmental and Resource Economics Flashcards
6 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Environmental and Resource Economics flashcards as text
What is a 'negative externality' in environmental economics?
Answer: A cost imposed on a third party not involved in the economic transaction
A negative externality occurs when a market transaction imposes costs on third parties, such as pollution from a factory harming nearby residents who bear health costs.
The Coase Theorem states that externalities can be resolved efficiently through private negotiation when which condition holds?
Answer: Property rights are well-defined and transaction costs are negligible
The Coase Theorem holds that if property rights are clearly assigned and bargaining is costless, parties will negotiate to the socially efficient outcome regardless of initial rights allocation.
A Pigouvian tax is designed to address market failures by doing which of the following?
Answer: Setting a tax equal to the marginal external cost to internalize the externality
A Pigouvian tax corrects for negative externalities by raising the private cost of production to equal the full social cost, leading producers to internalize the harm they cause.
What is the 'Tragedy of the Commons' as described by Garrett Hardin?
Answer: Shared resources are overexploited because individual users ignore the cost imposed on others
The Tragedy of the Commons describes how individually rational users of a shared resource overexploit it, leading to collective ruin—classic examples include overfishing and groundwater depletion.
In environmental economics, what does a 'cap-and-trade' system accomplish?
Answer: Sets a total emissions limit and allows firms to buy and sell emission permits
A cap-and-trade system establishes a binding ceiling on total emissions and lets firms with low abatement costs sell excess permits to firms with high abatement costs, achieving reductions at least cost.
What distinguishes a 'public good' from a 'common pool resource' in environmental economics?
Answer: Public goods are non-excludable and non-rival; common pool resources are non-excludable but rival
Public goods are both non-excludable (can't prevent use) and non-rival (one person's use doesn't reduce availability), while common pool resources are non-excludable but rival, making them subject to overuse.