Economics 5250/6250 Dr. LozadaFall 2015 Final Exam

This exam has 67 points. There are six questions on theexam; you should work all of them. Each question is worth11 points, except the first question, which is worth 12 points.

Put your answers to the exam in a blue book or on blanksheets of paper.

Answer the questions using as much precision and detail asthe time allows. Correct answers which are unsupported by ex-planations will not be awarded points. Therefore, even if youthink something is “obvious,” do not omit it. If you omit any-thing, you will not get credit for it. You get credit for nothingwhich does not explicitly appear in your answer. If you havequestions about the adequacy of an explanation of yours duringthe exam, ask me.

Answer all of the following six questions.

1. [12 points] Show that the steady-state supply curve in an open-access fishery has a “backward-sloping” portion (that is, a portion inwhich steady-state supply falls when the market price of the fish goesup). You may assume standard logistic growth of the fish species.

2. [11 points] Attempts to find Hotelling-Rule behavior in data fromexhaustible resource industries have, in general, failed. There are twocompeting explanations of this. Describe these two explanations andexplain why one results in a rather optimistic view of future resourcescarcity while the other does not.

3. [11 points] How could the Coase Theorem’s conclusions fail if atleast one of the parties acts “strategically,” sometimes refusing to ac-cept an offer that would be in his or her short-run best interest? Whymight someone act that way?

4. [11 points] On a graph, show the loss in social surplus resultingfrom a pollution tax if the tax-setting authority mistakenly thinks themarginal external cost curve (“MEC”) is below where it actually is.

5. [11 points] Discuss the following passage which appears in yourtextbook:

[. . . a Best Practicable Environmental Option is] the out-come of a systematic consultative and decision-making pro-cedure which emphasizes the protection and conservationof the environment across land, air, and water. The BPEOprocedure establishes, for a given set of objectives, the op-tion which provides the most benefit or least damage to theenvironment as a whole, at acceptable cost, in the long termas well as in the short term.

6. [11 points] Contrast the notion of entropy as representing “disor-der” with the equation 1S = 1H/T where 1H is heat flow and T isthe absolute temperature. Give an example showing how the equationcan explain a physical process.

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