Question 1

Willingness to pay (WTP) is a measure of consumers' willingness to pay for the i^t^h unit of output.

Accepted Answer

This statement is true. Willingness to pay (WTP) is a measure of the maximum amount that a consumer is willing to pay for a particular product or service. It is typically determined through market research surveys or experiments, and is used to assess the demand for a product or service at different price points.

Question 2

If the MDC depicts the amount society is willing to pay to avoid damage at the
 margin, then the MDC is essentially the supply curve for environmental quality.

Accepted Answer

The Marginal Damage Cost (MDC) represents the additional cost of one more unit of pollution or environmental damage, not the willingness to pay for environmental quality. The willingness to pay for improvements or to avoid damage is reflected in the Marginal Abatement Cost (MAC) or demand curve for environmental quality, not the supply curve.

Question 3

WTP and WTA are equivalent only if consumers value gains and losses similarly.

Accepted Answer

Willingness to Pay (WTP) and Willingness to Accept (WTA) are equivalent when consumers exhibit no loss aversion, meaning they value gains and losses equally.

Question 4

The actual measurement of WTP requires information on the prices, which are
 difficult to obtain for environmental assets.

Accepted Answer

The statement is true. Obtaining prices for environmental assets can be difficult, making it challenging to accurately measure WTP.

Question 5

Consumers' surplus is the difference between what consumers are willing to
 accept and what they will to pay.

Accepted Answer

Consumers' surplus is the difference between what consumers are willing to pay and what they actually pay. It represents the additional benefit or value that consumers receive from purchasing a good or service at a lower price than they were willing to pay.

Question 6

The opportunity cost approach uses shadow prices, which are values of similar
 goods in the public market.

Accepted Answer

The opportunity cost approach does not necessarily use shadow prices of similar goods in the public market; instead, it considers the value of the next best alternative foregone as the cost of making a decision. Shadow prices are used in cost-benefit analysis to value goods or services for which market prices do not exist.

Question 7

If a specific forest ecosystem service can be substituted with a physical structure
 or technology, then the cost of this substitute to replace the forest ecosystem
 service is viewed as the economic value of the forest's service.

Accepted Answer

This statement is true. The economic value of a forest ecosystem service can be estimated by determining the cost of a physical structure or technology that can replace or replicate the function of the forest in providing that service.

Question 8

Environmental features are always found to increase land and house values.

Accepted Answer

Environmental features can increase or decrease land and house values depending on their nature; for example, proximity to water bodies might increase value, while proximity to industrial areas might decrease it.

Question 9

If John is willing to pay extra land taxes to keep a cell phone tower away from his
 home, then he is implicitly revealing his WTP for avoiding the nuisances/dangers
 associated with a cell phone tower.

Accepted Answer

John's willingness to pay extra land taxes is a reflection of his preference for avoiding the nuisances/dangers associated with a cell phone tower, indicating his Willingness To Pay (WTP) for this benefit.

Question 10

A hedonic wage function can be used to reveal how much compensation, on average, a
 high-voltage powerline worker requires to accept more environmental risk of working
 with powerlines.

Accepted Answer

This statement accurately describes the purpose and application of a hedonic wage function.

Question 11

An annual present value amount represents the value of X extra years of living
 (life) to an individual.

Accepted Answer

The annual present value amount represents the current value of a stream of future cash flows, such as a pension or annuity. It does not relate to the value of extra years of living.

Question 12

In the United States, the estimates for defensive environmental expenditure range
 between 25 to 50 percent of total GDP.

Accepted Answer

While environmental expenditures do exist in the United States, they typically account for less than 10 percent of total GDP, according to the Bureau of Economic Analysis. The estimate of 25 to 50 percent given in the statement is greatly exaggerated.

Question 13

The limitation of these stated preference methods is that they can only measure
 use values.

Accepted Answer

Stated preference methods can measure both use and non-use values, as they allow respondents to express their willingness to pay or willingness to accept for those values.

Question 14

Stated preference valuation methods differ from revealed preference valuation
 methods in that the WTP is elicited by asking people to directly state their choices by using survey methods.

Accepted Answer

Stated preference valuation methods involve surveys and asking individuals to directly state their preferences and willingness to pay, while revealed preference methods observe actual consumer behavior to infer willingness to pay.

Question 15

One cannot carry out a contingent valuation survey unless the study participants
 are familiar with the exact nature of the environmental goods or services to be
 valued.

Accepted Answer

Contingent valuation surveys often include detailed descriptions or scenarios to inform participants about the environmental goods or services being valued, even if they are not initially familiar with them.

Question 16

Figure 7A
 
-Refer to Figure 7A. Which of the following statements can apply to Figure 7A?
A) The figure represents a demand curve.
B) The figure represents an environmental supply curve.
C) The figure represents consumers' willingness to pay.
D) Both a and c.
E) Both band c.

Accepted Answer

The shape of the curve in Figure 7A resembles a demand curve, suggesting that it represents consumers' willingness to pay. Therefore, option C is correct. Since the curve represents the willingness to pay of consumers, it can also be seen as a demand curve. Therefore, option A is also correct, and the best choice is D. Option B is incorrect because the curve does not represent the supply of environmental resources.

Question 17

Figure 7A -Refer to Figure 7A. Which of the following statements can apply to Figure 7A? A) If Pe is assumed to be the market equilibrium price, all those consumers whose WTP is represented by P1 will be expected to decide to purchase this good or service. B) P1 represents what consumers' are willing to pay for the 10^t^h unit of a given good or service, Q. C) Pe represents what consumers' are willing to pay for the 25^t^h unit of a given good or service, Q. D) All can apply. E) None apply.

Accepted Answer

Each statement relates to common interpretations of demand curves and market equilibrium concepts. A) is true because consumers with a willingness to pay (WTP) at or above the equilibrium price (Pe) will purchase the good. B) and C) describe how specific points on the demand curve represent the WTP for the last unit purchased, which is a standard economic principle.

Question 18

Figure 7B
 
-Refer to Figure 7B. The marginal damage cost curve implies that …
A) Beyond Q2, society's WTP for the next incremental increase in environmental
 improvement is extremely high.
B) Beyond Q2, society's WTP for the next incremental increase in environmental
 improvement is extremely low.
C) At Q1, society's WTP is optimized.
D) At Q2, society's WTP is optimized.
E) None of the above.

Accepted Answer

The marginal damage cost curve intersects the marginal abatement cost curve at Q2, which is the socially optimal level of pollution reduction. Beyond Q2, the marginal damage cost curve is extremely steep, indicating that society's willingness to pay for further environmental improvement is low.

Question 19

Since economic valuation of benefit is based on the concept of WTP, this implies that…
A) The benefits from improved environmental quality are equal to the value of the
 environment.
B) The benefits from improved environmental quality are greater than the value of the
 environment.
C) The benefits from improved environmental quality are the preferences of people for an
 environmental good.
D) The benefits from improved environmental quality are greater than the preferences of
 people for an environmental good.

Accepted Answer

WTP (willingness to pay) is based on the concept of individuals expressing their preferences for environmental goods through the amount of money they are willing to pay for them. Therefore, the benefits from improved environmental quality are the preferences of people for an environmental good, which is represented by their WTP. Option A, B, and D are incorrect interpretations of the concept of WTP.

Question 20

Figure 7C
 
-Refer to Figure 7C. Assume that the farm product is grapes for wine-making. Which of the following reason(s) can result in a shift of the supply curve as illustrated in the figure?
A) Grape farms have improved access to water.
B) New, stricter environmental regulations improve air quality.
C) New, lax environmental regulations reduce air quality.
D) Both a and b
E) Both a and c

Accepted Answer

Improving access to water for grape farms will increase their productivity, leading to an increase in supply and a shift in the supply curve to the right. Similarly, stricter environmental regulations that improve air quality can lead to improved growing conditions and increased productivity, also resulting in a rightward shift of the supply curve. In contrast, lax environmental regulations that reduce air quality can lead to decreased productivity and a leftward shift of the supply curve. Therefore, choices A and B can result in a shift of the supply curve, while choice C will not. Both A and B are correct, so the answer is D.

Quiz 7: Alternative Methods of Valuation of Environmental Goods and Services

Willingness to pay (WTP) is a measure of consumers' willingness to pay for the ith unit of output.

If the MDC depicts the amount society is willing to pay to avoid damage at the margin, then the MDC is essentially the supply curve for environmental quality.

WTP and WTA are equivalent only if consumers value gains and losses similarly.

The actual measurement of WTP requires information on the prices, which are difficult to obtain for environmental assets.

Consumers' surplus is the difference between what consumers are willing to accept and what they will to pay.

The opportunity cost approach uses shadow prices, which are values of similar goods in the public market.

If a specific forest ecosystem service can be substituted with a physical structure or technology, then the cost of this substitute to replace the forest ecosystem service is viewed as the economic value of the forest's service.

Environmental features are always found to increase land and house values.

If John is willing to pay extra land taxes to keep a cell phone tower away from his home, then he is implicitly revealing his WTP for avoiding the nuisances/dangers associated with a cell phone tower.

A hedonic wage function can be used to reveal how much compensation, on average, a high-voltage powerline worker requires to accept more environmental risk of working with powerlines.

An annual present value amount represents the value of X extra years of living (life) to an individual.

In the United States, the estimates for defensive environmental expenditure range between 25 to 50 percent of total GDP.

The limitation of these stated preference methods is that they can only measure use values.

Stated preference valuation methods differ from revealed preference valuation methods in that the WTP is elicited by asking people to directly state their choices by using survey methods.

One cannot carry out a contingent valuation survey unless the study participants are familiar with the exact nature of the environmental goods or services to be valued.

Figure 7A -Refer to Figure 7A. Which of the following statements can apply to Figure 7A?

Figure 7A -Refer to Figure 7A. Which of the following statements can apply to Figure 7A?

Figure 7B -Refer to Figure 7B. The marginal damage cost curve implies that …

Since economic valuation of benefit is based on the concept of WTP, this implies that…

Figure 7C -Refer to Figure 7C. Assume that the farm product is grapes for wine-making. Which of the following reason(s) can result in a shift of the supply curve as illustrated in the figure?

Willingness to pay (WTP) is a measure of consumers' willingness to pay for the i^t^h unit of output.