CEA Environmental and Resource Economics 2

Question 1

What is the 'social cost of carbon' (SCC) used for in US regulatory economics?

Accepted Answer

Estimating the monetary damage caused by emitting one additional ton of CO₂ for use in cost-benefit analysis

Answer

The SCC converts the long-run economic damages from one ton of CO₂ emissions into a dollar figure used by US federal agencies to weigh climate costs in regulatory benefit-cost analyses.

Question 2

Which concept describes the economic value people place on a resource even if they never intend to use it, simply because it exists?

Accepted Answer

Existence value (non-use value)

Answer

Existence value captures willingness to pay for the preservation of an environmental resource—such as an endangered species or pristine wilderness—purely because it exists, independent of any personal use.

Question 3

What does the 'Environmental Kuznets Curve' hypothesis predict about economic development and pollution?

Accepted Answer

Pollution first rises then falls as income per capita increases, following an inverted-U shape

Answer

The Environmental Kuznets Curve hypothesizes that as countries develop, pollution initially worsens due to industrialization but eventually improves as rising incomes generate demand for environmental quality and cleaner technology.

Question 4

In natural resource economics, what is the 'Hotelling Rule' for nonrenewable resource extraction?

Accepted Answer

The optimal extraction path requires the resource price to rise at the rate of interest

Answer

Hotelling's Rule states that in a competitive market, the net price (price minus extraction cost) of a nonrenewable resource must rise at the rate of interest to make resource owners indifferent between extracting now and waiting.

Question 5

What is 'contingent valuation' used for in environmental economics?

Accepted Answer

Estimating the economic value of non-market environmental goods through survey-based willingness-to-pay questions

Answer

Contingent valuation uses hypothetical market scenarios in surveys to elicit how much respondents would be willing to pay (or accept) for changes in non-market environmental goods like clean water or wilderness.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Environmental and Resource Economics 2