Pre-Test Chap 15 e18 - Pre-Test Chap 15 e18 Student: _ Use...

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Pre-Test Chap 15 e18 Student: ___________________________________________________________________________ Use the following graph to answer questions 51-58. It shows the extraction costs for TX Oil Company in the first year in a situation where it will extract oil from a reserve over two years. 1. Refer to the above graph. If the current market price is $60 and user costs are not considered, the extraction cost is: A. $20 B. $50 C. $60 D. $70 2. Which of the following is the best example of a market failure to conserve a resource resulting from poorly-defined property rights? A. Preserving elephants in Africa B. Drilling for oil in Saudi Arabia C. Mining of oil shale in Canada D. Hunting of deer in the United States 3. A farmer discovers a natural gas reserve on his property. He can extract the natural gas for a profit of $40 per unit now, $55 per unit in one year, $57 per unit in two years, and $60 in three years. The current market rate of interest is 6 percent. When should the farmer extract the natural gas to obtain the most profit per unit in present value terms? A. Today B. One year C. Two years D. Three years
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4. Over-extraction of a resource in the present can occur because: A. There is a user cost B. There is an extraction cost C. Users can benefit from conservation D. Property rights are not clearly defined 5. Which one of the following is a correct description of the relationship between the price of oil and the production of alternative energy sources? A. As the price of oil falls, the production of alternative energy sources rises B. As the price of oil rises, the production of alternative energy sources falls C. As the price of oil rises, the production of alternative energy sources rises D. As the price of oil falls, the production of alternative energy sources stays the same 6. Donald fishes for swordfish at a cost of $6 per ton. Ronny fishes at a cost of $4 per ton. Both have one 1000 ITQ and the current market price is $10 per ton. If Donald sold his ITQ to Ronny for $5000, society would benefit from: A. More fish being caught B. Less fish being caught C. An efficiency saving in fishing costs of $2000 D. An efficiency saving in fishing costs of $5000 7. The primary focus of natural resource economics is to develop policies for harvesting or extracting natural resources that: A. Minimize the net costs B. Maximize the net benefits C. Minimize the negative externalities D. Maximize the positive externalities 8. An electricity company has the opportunity to use natural gas to generate electricity at a cost of $30 per unit in 2 years. The current
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This note was uploaded on 05/23/2010 for the course ECON 101 taught by Professor Keep during the Spring '10 term at Glendale Community College.

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Pre-Test Chap 15 e18 - Pre-Test Chap 15 e18 Student: _ Use...

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