FREC 424 (09S) First Hour Exam

20 points, 2 points/question.

 

1.                  Explain the difference between “reserves” and total “resources.” 
Explain how market responses to increasing scarcity make a “crash and burn” resource depletion scenario unlikely. 
A static reserve index—current reserves divided by current annual consumption—is supposed to indicate how many years are left until the resource is depleted.  Why is this index consistently wrong?

2.                  Explain three indirect economic consequences of the US government’s sugar import quotas.

3.                  What is a Gini coefficient?  Why do countries with lower Gini coefficients have higher GDP per capita?  Why do countries with higher GDP per capita have lower fertility rates?

4.                  In collisions of big SUV’s with cars, about 80 percent of the fatalities are car occupants.  Classed as “light trucks,” SUV’s are exempt from the federal corporate average fuel economy (CAFÉ) standards that apply to cars, so they’re a lot heavier and have lower gas mileage. 
Explain this as a “prisoner’s dilemma” situation.
How do SUV’s affect overall highway safety, gasoline prices and air quality?
Is this economically efficient?  If not, what policy solution would you propose?

 

5.                  Briefly explain the primary advantages (according to Jared Diamond) that enabled Eurasians to conquer the Americas and eventually dominate the rest of the world.  Explain the geographic foundation of these advantages.

6.                  Due to its one-child-per-family policies, combined with selective abortion and perhaps some female infanticide, China now has 4 male children for every 3 female children.  Why would boys be preferred?  Explain the likely long-term consequences of this situation.
Explain why education of girls is a key factor in stimulating economic growth in poor nations. 

7.                  Suppose you own a stock of turbidium with a constant marginal extraction cost of $100 per ton. 
The current market price of turbidium is P0 = $150 per ton and increasing 3% annually, i.e.,
 Pt = P0(1.03)t  ≈ P0e0.03t.  
In what year t will the annual rate of growth of your marginal resource rent (MRRt = Pt - $100) fall to 6%?  Explain how you calculated your answer.  Explain how a $25 per ton severance tax on turbidium would affect the time trajectory of MRRt.

8.                  Write an explanation of Hotelling’s Rule for your mom.  How do you reconcile the theory that marginal resource rents should follow a smooth trajectory—rise at the rate of discount over time—with the reality that resource prices fluctuate up and down?

9.                  Suppose the marginal rent function for a non-renewable resource at time t is MRRt = 10 – 0.5Qt which inverts to Qt = 20 – 2MRRt.  Using a discount rate of 10%, calculate the efficient depletion schedule for a current stock of 5.29 units. 

10.              The OPEC cartel’s 1973 embargo tripled US oil prices, and made OPEC nations very wealthy.  Explain three reasons why OPEC’s pricing discipline fell apart soon after.