7

7 Student: ___________________________________________________________________________

1.

Changes in productivity, productivity, health-care health-care costs, costs, loss loss of human capital and replacement/ replacement/restorati restoration on of damaged property or businesses are all examples of ________. A. indirect approaches of cost estimation B. indirect approaches of benefit estimation C. direct approaches of cost estimation D. direct approaches of benefit estimation

2.

Preventative Preventative expenditure expenditures, s, hedonic hedonic estimation, estimation, surrogate markets and contingent contingent valuation are all all examples of ________. A. indirect approaches of cost estimation B. indirect approaches of benefit estimation C. direct approaches of cost estimation D. direct approaches of benefit estimation

3.

It is possible to estimate estimate ________ by considering considering information information about about reductions reductions in in worker worker productivity productivity and medical expenditures. A. demand for health care B. health damages C. output losses D. willingness to pay for hospitals

4.

In the follow following ing figure, figure, the the producer producer surpl surplus us for an output output level level of 3 units units is equal equal to _______ ________. _.

A. B. C. D.

$7.50 $5.25 $4.50 $2.25

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5.

In the following following figure, figure, the producer surplus for an output level of of 60 units is is equal to ________. ________.

A. B. C. D. 6.

$900 $1,800 $2,100 $3,000

In the following following figure, figure, assume assume that that improvements improvements in air quality shift the marginal marginal cost of production from MC1 to MC2. If the producer surplus is used as an approximation of the benefits from improving environmental quality, the maximum the producers would be willing to pay for the reduction in pollution is ________ when the market price of the good is P1.

A. area E B. areas E + D + C C. areas D + C D. area B + D







7.

In the following following figure, figure, consumer consumer surplus associated associated with 3 units of environmental environmental quality is equal equal to ________.

A. B. C. D. 8.

In the following following figure, figure, consumer consumer surplus associated associated with 5 units of environmental environmental quality is equal equal to ________.

A. B. C. D. 9.

$4.50 $9.00 $13.50 $18.00

$25.00 $62.50 $125.00 $187.50

The amount amount that a person would accept accept in order to be compensated compensated for for a small small loss in air quality is is called his/her ________. A. willingness to pay B. willingness to accept C. consumer surplus D. change in consumer surplus

10. Suppose public public authorities were were contemplating contemplating locating a hazardous hazardous waste incinerator incinerator in a particular community. If the members of this community offered to pay $25,000 to keep it out of their area, this amount is equal to their ________ for clean air. A. willingness to accept B. willingness to pay C. use value







12. The change in consumer consumer surplus surplus resulting resulting from an increase increase in environmental environmental quality quality (a public good) good) can be measured in the same way as the change in consumer surplus for a private good. True False 13. A major advantage advantage of using contingent contingent valuation valuation methods methods is the fact that that they rely on surveys. surveys. True False 14. When people are asked willingnesswillingness-to-accept to-accept questions, questions, their answers answers are usually higher higher than their willingness-to-pay responses for the same item. True False 15. In surveys and experimenta experimentall work where people people are asked to to compare gains gains and losses relative relative to a reference point, they place a higher value on losses from this reference point than gains. True False 16. Assume reductions reductions in the amount amount of ground level level ozone shift the the marginal cost cost of producing producing alfalfa from MC1 = 45 + 2QS to MC2 = 45 + 0.5QS. Use the producer surplus to estimate the maximum amount alfalfa producers would be willing to pay for this improvement in the air quality if the market price of alfalfa is $60/unit of output.

17. If the inverse inverse demand demand equation for for a market market good is equal equal to: PD = 105 - 0.5QD. What is the consumer surplus associated with consumption of 20 units of the good?

18. If a policy analyst imputes imputes marginal willingness willingness to pay for environmental environmental quality quality to be equal to: MWTP = 245 - 1.5EQ, where EQ represents a measure of environmental quality, what is the change in consumer surplus associated with an increase in EQ from 60 to 70 units?

19. List the four methods methods that can be be used to impute willingnes willingnesss to pay for environmental environmental improvement improvements. s.







20. List and very briefly briefly explain explain three criticisms criticisms of the travel-cost travel-cost method method of imputing imputing WTP for for environmental amenities.

21. List and very briefly briefly discuss discuss the strengths strengths and weaknesses weaknesses of contingent contingent valuation methods methods for imputing imputing WTP for environmental amenities.







7 Key 1.

Changes Chang es in in produ product ctivi ivity, ty, health health-ca -care re cost costs, s, loss loss of huma human n capit capital al and and repl replace acemen ment/r t/rest estora oratio tion n of damaged property or businesses are all examples of ________. A. indirect A. indirect approaches of cost estimation B. indirect B. indirect approaches of benefit estimation C. direct C. direct approaches of cost estimation D. direct approaches of benefit estimation Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #1 Learning Objective: 07-01 07-01 Distinguish between between direct and indirect indirect methods of calculating calculating the WTP for improvements improvements in environmental environmental quality.

2.

Preve Preventa ntativ tivee expend expenditu itures res,, hedoni hedonicc estim estimat ation ion,, surro surrogat gatee market marketss and cont conting ingent ent val valuat uatio ion n are all all examples of ________. A. indirect A. indirect approaches of cost estimation B. indirect approaches of benefit estimation C. direct C. direct approaches of cost estimation D. direct D. direct approaches of benefit estimation Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #2 Learning Objective: 07-01 07-01 Distinguish between between direct and indirect indirect methods of calculating calculating the WTP for improvements improvements in environmental environmental quality.

3.

It is poss possibl iblee to estim estimate ate ______ ________ __ by by consi conside derin ring g infor informa mati tion on abou aboutt redu reduct ction ionss in in work worker er productivity and medical expenditures. A. demand A. demand for health care B. health damages C. output C. output losses D. willingness D. willingness to pay for hospitals Accessibility: Keyboard Keyboard Navigation Difficulty: Moderate Field - Chapter 07 #3 Learning Objective: 07-01 07-01 Distinguish between between direct and indirect indirect methods of calculating calculating the WTP for improvements improvements in environmental environmental quality.

4.

In the the fol follow lowing ing figur figure, e, the the prod produce ucerr surpl surplus us for for an an outp output ut leve levell of 3 units units is equa equall to ______ ________. __.

A. $7.50 A. $7.50 B. $5.25 B. C. $4.50 C. D. $2.25 Difficulty: Easy









5.

In the the fol follow lowing ing figur figure, e, the the prod produce ucerr surpl surplus us for for an an outp output ut leve levell of 60 unit unitss is equal equal to to _____ ________ ___..

$900 B. $1,800 B. C. $2,100 C. D. $3,000 D. $3,000

A.

Difficulty: Easy Field - Chapter 07 #5 Learning Objective: 07-02 07-02 Explain the concept concept of producer surplus and how how to calculate it graphically. graphically.

6.

In the the fol follow lowing ing figur figure, e, assu assume me that that impro improvem vement entss in air air qual qualit ity y shift shift the margi marginal nal cost cost of prod product uction ion from MC1 to MC2. If the producer surplus is used as an approximation of the benefits from improving environmental quality, the maximum the producers would be willing to pay for the reduction in pollution is ________ when the market price of the good is P1.

A. area E A. area B. areas E + D + C C. areas D + C D. area D. area B + D







7.

In the the fol follow lowing ing figur figure, e, cons consume umerr surpl surplus us asso associa ciated ted with with 3 unit unitss of envi environ ronme menta ntall qual quality ity is equa equall to ________.

$4.50 B. $9.00 B. C. $13.50 C. D. $18.00 D. $18.00

A.

Difficulty: Easy Field - Chapter 07 #7 Learning Objective: 07-03 07-03 Explain the concept concept of consumer surplus surplus and how to calculate it graphically graphically for a market good good and a public good. good.

8.

In the the fol follow lowing ing figur figure, e, cons consume umerr surpl surplus us asso associa ciated ted with with 5 unit unitss of envi environ ronme menta ntall qual quality ity is equa equall to ________.

A. $25.00 A. $25.00 B. $62.50 C. $125.00 C. D. $187.50 D. $187.50 Difficulty: Easy Field - Chapter 07 #8







10.

Suppose Suppose public public autho authoriti rities es were were contempl contemplatin ating g locati locating ng a hazardou hazardouss waste waste incinera incinerator tor in a particul particular ar community. If the members of this community offered to pay $25,000 to keep it out of their area, this amount is equal to their ________ for clean air. A. willingness A. willingness to accept B. willingness to pay C. use C. use value D. consumer D. consumer surplus Accessibility: Keyboard Keyboard Navigation Difficulty: Moderate Field - Chapter 07 #10 Learning Objective: 07-05 07-05 Explain why willingness willingness to accept estimates estimates generally exceed those those of WTP.

11.

The The benefi benefits ts of impro improved ved envi enviro ronme nmenta ntall quali quality ty come come about about beca because use of of reduce reduced d damage damages. s. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #11 Learning Objective: 07-01 07-01 Distinguish between between direct and indirect indirect methods of calculating calculating the WTP for improvements improvements in environmental environmental quality.

12.

The change change in in consum consumer er surpl surplus us resul resulting ting from an incre increase ase in envir environm onmenta entall qualit quality y (a public public good) good) can be measured in the same way as the change in consumer surplus for a private good. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #12 Learning Objective: 07-03 07-03 Explain the concept concept of consumer surplus surplus and how to calculate it graphically graphically for a market good good and a public good. good.

13.

A major major advantag advantagee of of using using continge contingent nt valuatio valuation n metho methods ds is is the the fact fact that they rely on surve surveys. ys. FALSE

Although it is true that surveys are relatively easy to administer, they are also prone to bias since respondents will have incentives to misrepresent their true WTP for the environmental amenity. Other problems inherent with surveys include the biases of the creator of the survey questions, problems with small sample size and self-selection issues. These problems associated with the use of surveys make them a "disadvantage" of CVM. Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #13 Learning Objective: 07-04 07-04 Describe four methods methods of imputing WTP WTP for improvements in in environmental quality. quality.

14.

When people people are are asked asked willing willingness ness-to-to-acce accept pt quest questions ions,, their their answers answers are usually usually higher higher than than their their willingness-to-pay responses for the same item. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 07 #14







16.

Assume Assume reductio reductions ns in in the the amount amount of groun ground d level level ozone ozone shift shift the margina marginall cost cost of of produc producing ing alfalfa alfalfa from MC1 = 45 + 2QS to MC2 = 45 + 0.5QS. Use the producer surplus to estimate the maximum amount alfalfa producers would be willing to pay for this improvement in the air quality if the market price of alfalfa is $60/unit of output. The change in producer surplus will approximate the maximum that farmers will be willing to pay for the improved air quality. Initially, output will equal 7.5 units and producer surplus is equal to: PS1 = ½(60 - 45)7.5 = $56.25 After the marginal cost curve shifts, output will equal 30 and producer surplus is equal to: PS2 = ½(60 - 45)30 = $225 The difference between PS2 and PS1 will approximate the maximum amount the farmers will be willing to spend and this equals $168.75. Difficulty: Moderate Field - Chapter 07 #16 Learning Objective: 07-02 07-02 Explain the concept concept of producer surplus and how how to calculate it graphically. graphically.

17. 17.

If the the inv inver erse se dem deman and d equa equati tion on for for a mark market et goo good d is equ equal al to: to: PD = 105 - 0.5QD. What is the consumer surplus associated with consumption of 20 units of the good? When 20 units are consumed, the price will be $95. Consumer surplus will be equal to the area of a triangle with height 10 and width 20 which is $100.

Difficulty: Easy Field - Chapter 07 #17 Learning Objective: 07-03 07-03 Explain the concept concept of consumer surplus surplus and how to calculate it graphically graphically for a market good good and a public good. good.

18.

If a policy policy analy analyst st imput imputes es margi marginal nal willing willingness ness to pay pay for for envir environm onmenta entall qualit quality y to be equal equal to: MWTP = 245 - 1.5EQ, where EQ represents a measure of environmental quality, what is the change in consumer surplus associated with an increase in EQ from 60 to 70 units? To calculate the change in consumer surplus, we first calculate the level of consumer surplus for each level of environmental quality and then we compute the difference between them. When EQ = 60 units, MWTP = $155 and consumer surplus will be the area of a triangle with height 90 and width 60 which is equal to $2,700. When EQ = 70 units, MWTP = $140 and consumer surplus will be the area of a triangle with height 105 and width 70 which is equal to $3,675. The change in consumer surplus is therefore equal to 3,675 - 2,700 = $975. Consumer surplus increases by $975 when EQ increases from 60 to 70 units. Difficulty: Moderate Field - Chapter 07 #18 Learning Objective: 07-03 07-03 Explain the concept concept of consumer surplus surplus and how to calculate it graphically graphically for a market good good and a public good. good.

19.

List List the the four four meth methods ods that that can can be used used to to imput imputee will willing ingnes nesss to pay pay for envi environ ronmen mental tal







20.

List List and and very very brief briefly ly expla explain in three three criticis criticisms ms of the travel-c travel-cost ost method method of imputing imputing WTP for environmental amenities. The three main criticisms of the travel-cost method include: 1) multi-purpose visits: if the site in question is not the only destination or if the main purpose of the trip is not recreational, it can be difficult to accurately assess what costs of travel are actually associated with the site; 2) utility/ disutility of travel: travel costs may not actually be a good proxy for WTP for the site if the trip there is either highly enjoyable or very unpleasant; and 3) survey sample bias: this method only collects data from people who actually travel to the site even though others may still derive pleasure from knowing it is there, so their WTP will be missing from final estimates. Difficulty: Moderate Field - Chapter 07 #20 Learning Objective: 07-04 07-04 Describe four methods methods of imputing WTP WTP for improvements in in environmental quality. quality.

21.

List List and and very very brief briefly ly discu discuss ss the the strength strengthss and and weakn weaknesse essess of continge contingent nt valuatio valuation n method methodss for for imputing WTP for environmental amenities. The main strength of CVM is its flexibility - the researcher has total control over what questions to ask and surveys tend to be inexpensive to administer. There are three main weaknesses of CVM including: 1) the hypothetical character of the questions: because people are being asked about their WTP for environmental amenities (i.e., goods without an actual market or price), it is hard for them to accurately assess what this actually is; 2) incentives to misstate WTP: people might understate WTP if they think this will result in lower taxes/prices for the good or they may overstate WTP since they know their actual share will be quite small; and 3) other practical problems with surveys: these could include bias of the analyst, small sample sizes; self-selection problems, etc. Difficulty: Moderate Field - Chapter 07 #21 Learning Objective: 07-04 07-04 Describe four methods methods of imputing WTP WTP for improvements in in environmental quality. quality.









7 Summary Category

# of Questions

Accessibility: Keyboard Navigation

10

Difficulty: Easy

14

Difficulty: Moderate

7

Field - Chapter 07

21

Learning Objective: 0701 Distinguish between direct and indirect methods o f calculating the WTP for improvements in environmental quality.

4

Learning Objective: 07-02 Explain the concept of producer surplus and how to calculate it graphically.

4

Learning Objective: 0703 Explain the concept of consumer surplus and how to calculate it graphically for a market good and a public good.

5

Learning Objective: 07-04 Describe four methods of imputing WTP for improvements in environmental quality.

4

Learning Objective: 07-05 Explain why willingness to accept estimates generally exceed those of WTP.

4

7

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