Env Sci/Econ 6

Fall 2015
Midterm Review I

Instructor office hours: Wednesday 2-4.

TA office hours: see website/email.
Exam: Friday, October 23

Exam format and material

Please bring a Scantron Form No. 886-E Mini-Essay Book.

The exam will cover parts 1-6 of the course except as noted below. This includes material
extending through last Wednesday (October 14, Class 8), and the assigned reading as noted
on the Reading List.

The exam format will consist of approximately 2/3 multiple choice and 1/3 written questions.
In your written answers, make sure to provide complete diagrams as appropriate.

There will only be a very few questions needing at most very simple calculations. No
questions will have more extended calculations as on the problem sets. In that sense, the
problem set questions and exam question types are not the same. However, graphical
analysis type of questions will be on the exam.

The exam focuses on the main concepts of the course as described below. All the concepts
covered on the exam were covered in lecture notes. There are no questions specifically
drawn from the reading and not covered in class notes.

Concept Review
1. Economic and environmental history
We have witnessed dramatically increasing trends over the last 150 years or so in the following:
population, production/consumption of goods/services on both a total and per-capita
basis, use of natural resources, reliance on nonrenewables
While there has been dramatic growth in the industrialized countries, this is not true for
everyone. There is an extremely wide disparity in incomes, consumption, and natural resources
among the worlds nations.
Inputs to economic production = natural resources, labor, capital; these are typically scarce.
Outputs = consumption goods and investment goods.

2. Humans and the environment

Socio-economic systems
economies: production and consumption of goods and services, circular flow.
political system: collective decision-making, public goods/services.
cultural values: determined by ethics, religion, tradition, etc.
Natural environment
Land, air, water, minerals, biota.
Natural resource extractions, waste emissions to the environment.
Co-evolution
Human and natural systems evolve over time in response to each other.
3. Households and consumer theory
WTP = maximum amount of money a consumer is willing and able to pay for a specified
quantity of a good or service.
Utility=well-being or satisfaction; defined in WTP terms as a function of consumption quantity;
marginal utility = slope of utility function, this is expected to be downward-sloping for
essentially all goods/services.
Optimal purchase rule: purchase the good/service to the point where P = MU.
Demand curves, MU curve is the demand curve for an individual household, Law of Demand,
demand shifters, change in quantity demanded vs. change in demand.
4. Firms and production theory
Total revenue = P Q.
Cost functions: total cost=fixed + variable cost, average cost and marginal cost; typical case=Ushaped ATC, rising MC after some point, MC=ATC at low point on the ATC curve.
Profits = TR-TC.
Perfectly competitive firm: small compared to the market, price-taker, horizontal demand curve
for output, profit-maximization occurs where P=MC, profit/loss on diagram.
Definition of supply curve, supply curve for an individual firm in perfect competition = MC.
Supply curves are typically upward sloping, notion of supply shifters, change in quantity
supplied vs. a change in supply.

5. Market equilibrium
Perfect competition = many producers and consumers.
Market supply = horizontal sum of individual supply curves.
Market demand = horizontal sum of individual demand curves.
Equilibrium occurs where Quantity Supplied = Quantity Demanded; demand/supply shifts
will change equilibrium P and Q. Price supports and ceilings.
6. Social welfare
Social welfare = economic efficiency + equity. Economic efficiency makes SNB as large as
possible and this occurs where SMC = SMB. Equity is defined as a fair or just distribution of
income (but not necessarily monetarily equal incomes).
Market equilibrium under perfect competition is economically efficient. This is the invisible
hand idea of Adam Smith and provides the intellectual basis for market-type economies in the
U.S. and most other countries in the world at this point in time.
NOTE: there will be no questions on monopoly, externalities or public goods on this exam!!!