Question 1

An electricity company is considering damming a small river to generate electricity at a cost of $250,000 and a profit of $300,000 in 5 years. The current market rate of interest is 3 percent. Should the company make the investment?

Accepted Answer

The present value of the profit ($300,000 in 5 years) discounted at a 3% interest rate is greater than the immediate cost of $250,000, making the investment financially viable.

Question 2

Melanie and Oli are competing Pacific halibut fishers. Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each. Melanie's cost per ton is $20; Oli's cost per ton is $28. Assume that the market price of Pacific halibut is $40 per ton. If Melanie pays Oli $10 per ton for his ITQs and then catches her new limit of 2,000 tons, her profit would be

Accepted Answer

Melanie's cost for catching 2,000 tons at $20 per ton is $40,000. She sells the halibut for $40 per ton, making $80,000. She pays Oli $10 per ton for 1,000 tons, costing $10,000. Her profit is $80,000 (revenue) - $40,000 (cost of catching) - $10,000 (payment to Oli) = $30,000.

Question 3

A rising standard of living will

Accepted Answer

A rising standard of living often leads to a reduction in the birthrate as people have better access to education and family planning, and as women enter the workforce. However, the population may still grow if the death rate decreases more rapidly due to improvements in healthcare and living conditions.

Question 4

Whose An Essay on the Principle of Population argued that human living standards could only temporarily rise above subsistence?

Accepted Answer

Thomas Malthus argued in "An Essay on the Principle of Population" that population growth would always outpace food supply growth, leading to periods where the standard of living would increase only temporarily before falling back to subsistence levels.

Question 5

The total fertility rate

Accepted Answer

The total fertility rate measures the average number of children that a woman is expected to have during her lifetime, reflecting the fertility level of a population.

Question 6

A Middle Eastern country has an oil reserve that it can extract for a profit of $50 a barrel today, $55 a barrel in two years, $60 a barrel in three years, and $65 in four years. The current market rate of interest is 10 percent. When should this country tap into its oil reserve to obtain the most profit per barrel in present value terms?

Accepted Answer

To determine the most profit per barrel in present value terms, we calculate the present value (PV) of the profits for each option using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of years. Calculating for each option: - Today: $50 (no need to discount as it's already in present terms) - In two years: $55 / (1 + 0.10)^2 = $45.45 - In three years: $60 / (1 + 0.10)^3 = $45.13 - In four years: $65 / (1 + 0.10)^4 = $44.96 The highest present value is $50 for extracting today, making it the most profitable option in present value terms.

Question 7

A farmer discovers a natural gas reserve on his property. He can extract the natural gas for a profit of $70 per unit now, $72 per unit in one year, $74 per unit in two years, and $76 in three years. The current market rate of interest is 4 percent. When should the farmer extract the natural gas to obtain the most profit per unit in present value terms?

Accepted Answer

To find the most profit per unit in present value terms, we discount the future profits back to their present value using the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years. Calculating for each option: Today = $70; One year = $72 / (1.04)^1 = $69.23; Two years = $74 / (1.04)^2 = $68.49; Three years = $76 / (1.04)^3 = $67.76. The highest present value is for extracting the gas today at $70.

Question 8

A total fertility rate of 1.0 will cause the

Accepted Answer

A total fertility rate (TFR) of 1.0 means that, on average, each woman in the population is having one child. Since it takes two people (a man and a woman) to produce one child, a TFR of 1.0 would result in the next generation being half the size of the current generation, assuming no immigration and that the TFR applies uniformly across the population.

Question 9

An oil company is considering drilling in the Gulf at a current cost of $350,000 with an expected profit of $400,000 in three years. The current market rateof interest is 5 percent. Should the company make the investment?

Accepted Answer

The present value of the profit ($400,000) discounted at 5% over three years is less than the current cost of $350,000, making the investment unwise.

Question 10

Relative to 1800, today in the world there are

Accepted Answer

Since 1800, the global population has significantly increased, and technological advancements, economic growth, and globalization have led to higher per-capita consumption of resources and goods.

Question 11

If a country has a total fertility rate of 1.80, then, all else equal, we would expect

Accepted Answer

A total fertility rate (TFR) of 1.80 means that, on average, each woman in the country is expected to give birth to 1.8 children during her lifetime. This is below the replacement level fertility rate of approximately 2.1 children per woman, which is needed to keep the population stable (assuming no immigration and no changes in mortality rates). Therefore, all else being equal, we would expect the population in that country to fall over time.

Question 12

An electricity company has the opportunity to use natural gas to generate electricity at a cost of $35 per unit in 3 years. The current market rate of interest is 6 percent. The present value of this cost is about

Accepted Answer

The answer of An electricity company has the opportunity to...

Question 13

The total fertility rate necessary to keep the population constant is approximately equal to

Accepted Answer

The total fertility rate necessary to keep the population constant, accounting for the mortality rate before the age of reproduction, is approximately 2.1 children per woman.

Question 14

An oil producer discovers an oil supply in Texas that can be pumped for a profit of $60 per barrel now, $65 per barrel in three years, $70 per barrel in five years, or $75 a barrel in seven years. The current market rate of interest is 5 percent. When should the oil producer extract the oil to obtain the most profit per barrel in present value terms?

Accepted Answer

To determine the most profit per barrel in present value terms, we calculate the present value (PV) of the profits for each option using the formula PV = FV / (1 + r)^n, where FV is the future value (profit per barrel), r is the interest rate (5% or 0.05), and n is the number of years. Calculating for each:- Today: $60 (no need to discount, it's already in present value terms).- In three years: $65 / (1 + 0.05)^3 ≈ $56.23.- In five years: $70 / (1 + 0.05)^5 ≈ $54.83.- In seven years: $75 / (1 + 0.05)^7 ≈ $53.45.The highest present value is $60, which is obtained by extracting the oil today.

Question 15

Melanie and Oli are competing Pacific halibut fishers. Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each. Melanie's cost per ton is $20; Oli's cost per ton is $25. If the market price of Pacific halibut is $35 per ton, what is the minimum amount per ton that Melanie would have to offer Oli to convince him to sell Melanie his ITQs?

Accepted Answer

Melanie would need to offer Oli more than his profit margin per ton to make it worthwhile for him. Oli's profit per ton is $35 (market price) - $25 (cost) = $10. Offering anything above $10 would make selling the ITQs attractive to Oli.

Question 16

A logging company is considering logging an area for a current cost of $500 per acre to obtain a profit the next year of $600 per acre. The market rate of interest is 10 percent. Should the company make the investment?

Accepted Answer

The present value of the profit ($600) next year, discounted at the market rate of interest (10%), is $600 / (1 + 0.10) = $545.45, which is greater than the current cost of $500 per acre. Therefore, the investment is financially viable.

Question 17

As of 2018, the world's population is approximately

Accepted Answer

As of 2018, the world's population was approximately 7.7 billion, according to estimates by the United Nations and other demographic research.

Question 18

What is the relationship between living standards and birthrates?

Accepted Answer

Generally, as living standards (measured by income, education, access to healthcare, etc.) improve, birthrates tend to decline. This is because with higher living standards, people often have fewer children due to factors like better access to contraception, higher education levels, especially among women, and a shift from agricultural to industrial or service economies where large families are less necessary or economically viable.

Question 19

An oil company has the opportunity to extract oil from a reserve in three years with a per barrel profit of $100 per barrel. The current market rate of interest is 8 percent. The present value of this future extraction is about

Accepted Answer

The present value (PV) of future cash flows can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Here, FV = $100, r = 8% or 0.08, and n = 3 years. So, PV = $100 / (1 + 0.08)^3 = $100 / 1.259712 = approximately $79.

Question 20

Relative to 1800, the living standard of the average person today in the United States is about _____ times higher.

Accepted Answer

The answer of Relative to 1800, the living standard of...

Quiz 19: Natural Resource and Energy Economics