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# Economics 238

Quiz #1 - SOLUTIONS
Thursday, September 10, 2009
INSTRUCTIONS:
(1)

## Please use the back of your chart as the examination form

(2)

Write only your student ID# on the top of the form. We will be
grading them blind. If your ID is not clear, we will not be able
to record a grade for you.

(3)

points.

## Question #1 (BASED ON THE CHART): From your chart, very briefly

describe what the most significant risks to human health and safety
are in the US or worldwide at the start of the 21st century?
Are the leading risks related to environmental factors? Explain how.
Finally, what does the data tell us about how we should devote
resources to mitigating such problems?
(1 point) for bringing in a relevant chart/table.
(1 point) for commenting on how these are related to environmental
factors. For example, if the leading cause of death in the US is heart
disease, a good answer might suggest that heart disease is not
generally directly related to the major environmental problems we can
think of but that certainly there can be environmental problems such
as air pollution which exacerbate or cause certain conditions.
(2 points) These types of data actually provide very little help in
determining the most effective place to spend resources. Just because
something is a major risk factor does not mean the most resources
should be devoted to it. The relevant economic question follows: where
would additional resources have the largest impact on reductions in
mortality and morbidity? It might be the case that marginal
improvements are largest for the most serious risk factors, but that by
no means is evident from the raw data we need to know how easy it
is to reduce the risks of the various factors before allocating dollars
toward one or another.

## Question #2 (BASED ON THE CLASS NOTES): In class we discussed

how living in a world of zero pollution is not an option. One reason for
this is that pollution is not something desirable in itself, or produced for
its own sake, but rather is the byproduct of the creation of goods and
services that we enjoy. Therefore, to reduce pollution to zero would
require us to forego all of the products and services that we enjoy, but
that also cause pollution.
Suppose that we stumbled upon some pollution that was not a result of
something we liked some evil person has secretly been pumping it
into the air for decades. Is it possible to eliminate all of this pollution?
Explain.
(1 point) Generally, NO.
(1 point) It is costly to clean up pollution.
(2 points) That does not necessarily mean we cant eliminate it to zero,
but for virtually all pollutants, the cost of cleaning up an additional unit
increases as we clean up more pollution. This happens for two reasons
(for full credit, I expect you to describe only one of these). First the
direct clean-up costs of pollution abatement increase as we try to clean
it up. For example, it is far more difficult to locate and eliminate the
very last molecule of pollution than it is to do the same for the very
first. Second, the indirect clean up costs also increase as we abate
more pollution. Although the pollution itself (in this case) does not
come from activities that we enjoy, dedicating resources to fighting
pollution means that we are giving up the opportunity to employ them
elsewhere in ventures that we enjoy. So, to clean up the first units of
pollution, perhaps we all give up our least valuable endeavors such
as watching reruns of Archie Bunker early in the morning. However, in
order to continue abating pollution, we must give up more valuable
activities as we continue in the process. To get that last molecule of
pollution might require you to quit your day job, or have workers stop
doing R&D on solar technology and doing more R&D on detection of
microscopic pollution particles. At some point, it is not worth it to clean
it up.
Question #3 (BASED ON THE READING): In the Fullerton and Stavins
article, the authors describe why economists so vehemently pursue the
use of prices when valuing environmental amenities. Is it because
economists are only concerned with the financial flows that emanate
from environmental resources? No. Why, then, do we insist on finding
prices for virtually everything?

## (4 points) We need to find a way to express the total value to society of

various environmental amenities. When it comes to the environment
there are many types of values that we would like to consider when
doing cost-benefit analysis, or merely thinking about the scope and
nature of problems. In addition to financial values, environmental
amenities provide use value, existence value, option value, and a
variety of other values that are not generally represented by prices.
However, we still need to figure out a simple way to express all of
these values together, and prices/monetary terms are an extremely
convenient, if imperfect, way of doing it