Chapter 3: Markets and Commodities
Test bank questions
Multiple Choice
1. The Coase theorem
a. asserts that population expands geometrically, but resources increase arithmetically.
b. states that optimal distribution of all goods will occur as long as property rights are clearly defined.
c. explains the impact of affluence on the environment.
2. The outcome of the wager between Ehlich and Simon suggested that the effects of population growth on the environment
a. are mediated by innovation.
b. are the most important causes of environmental degradation.
c. are negligible.
3. ______is the observation that more efficient use of a resource can lead to greater environmental degradation.
a. the market response model
b. the Coase theorem
c. Jevons’ paradox
4. According to the market response model, innovations can lead to ______.
a. decrease in demand
b. increase in supply
c. both A and B
5. The type of market failure in which the costs or benefits of an activity are not figured into the cost is known as ______.
a. an externality
b. a transaction cost
c. a monopsony
6. A market-based solution to environmental problems in which a pollution limit is set and permits to pollute may be bought and sold on a free market is known as ______.
a. banking programs
b. cap and trade
c. green consumption
7. Consumer-driven environmental change can be achieved through ______.
a. green consumption
b. green taxes
c. greenwashing
True/False
8. Market-based solutions are always equitable.
a. true b. false
9. Greenwashing is the attempt by corporations to accurately report their environmentally-friendly practices.
a. true b. false
10. More efficient use of a resource can lead to increased consumption of that resource.
a. true b. false
Identification
People: Paul Ehrlich, Julian Simon, William Stanley Jevons, Ronald H. Coase
Keywords: cap and trade, Coase theorem, externality, green certification, greenwashing, Jevons’ paradox, market failure, market response model, monopoly, monopsony, transaction costs
Concepts: market environmentalism, green taxes, green consumption
Essay
· What was the subject of the wager between Simon and Ehrlich? Who won, and why? What is the significance of the bet and the result for population growth and environmental issues?
· What does the Market Response Model predict would occur if the availability of Persian Gulf oil were to decline dramatically in a short period of time? Clearly and concisely provide a step‐by‐step discussion of how the market would respond to a change in the availability of oil.
· What types of equity problems do market-based solutions create? Name two ways that certain populations may be excluded from participation in market-based solutions to environmental problems.