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Econ 374 Practice Midterm 2

Econ 374 Practice Midterm 2 - Practice Questions for Miderm...

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Practice Questions for Miderm 2 : ECON/FRE 374, Fall 2011 1) Define briefly the following concepts (2-3 sentences) a. Contingent Valuation of a natural resource. Enumerate the four steps in a Contingent Valuation Analysis. Is contingent valuation classified as a market or non-market technique in natural resource analysis? Answer: A contingent valuation analysis is classified as a non-market technique. The method of contingent valuation is to survey people and directly ask them their willingness to pay for a natural resource. The process is called contingent valuation as it attempts to elicit a value for a contingent use of resource. The Main steps in Contingent Valuation are i) Identification and description of environmental quality to be evaluated. ii) Identification of respondents to be approached, including sampling procedures iii) Design and application of a survey questionnaire, using phone, mail, personal etc iv) Analysis of results and aggregation of individual responses to estimate values b. Economic Impact Analysis. While evaluating a project that involves natural resource is an economic impact analysis appropriate? Why, or why not?. Answer: An economic impact analysis analyzes only the economic impact of any proposed project. The Range of Economic Impacts from the project usually listed in an economic impact analysis are 1) Employment numbers, 2) Household incomes, 3) Rates of inflation, 4)Trade balances etc. An impact analysis is only as good as the data and model used, and in order for it to be conducted well a good knowledge of the local economy is important. The economic impact usually ignores environmental impact. This implies that it is not appropriate for evaluating a project that involves natural resource use. c. Explain the concept of Individual Transferable Quotas (ITQ’s). Write down the steps the regulatory authority needs to take to ensure that the ITQ’s are correctly determined and are functioning appropriately. Answer: Individual Transferable Quotas (ITQ’s) are designed to reduce access to a fishery and discourage overcapitalization. The basic idea behind a ITQ is to set a Total Allowable Catch (TAC) and divide it into quotas for individuals and make the quotas transferable Steps for a regulatory authority Establish TAC’s that are both economically and biologically meaningful Divide the TAC into a number of individual catch limits or catch quotas Allow individual quotas to be bought or sold, and keep track of ownership Enforce catch quotas – fishers cannot harvest excess quantities
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Monitor the performance of ITQ market to spot and manage problems related to concentrated ownership, community impacts and biological uncertainties d. Benefit cost analysis (mention the main steps for a benefit cost analysis).
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Econ 374 Practice Midterm 2 - Practice Questions for Miderm...

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