Urban

Economics: 335
2nd October 2014
Bipasha Chatterjee
Pre-Midterm Assessment: 25 Marks
1. In the City of Cape Town, South Africa, 2 million tons of waste is disposed off at a landfill site
each year (De Wit and Nahman, 2009). The municipality collects 50% of the city garbage
produced by consumers and disposes that in the municipal landfill site located at the edge of the
city. In this example, the landfill is a:
a. public good
b. open access good
c. private good
2. The external costs arising due to the negative externalities created by the landfill at the city
edge are as follows (select the correct answer/answers from the list):
a. Methane gas emission from the landfill creates health related cost for the residents;
b. Bad odor from the landfill adds cost for installing air purifier and double glazing in the
neighborhood houses;
c. Underground water pollution through chemical seepage from the waste leads to cost for
installing water purifier in the neighborhood houses;
d. Residents bear the cost of city-tax for door-to-door garbage clearance, waste disposal at
the landfill and maintenance of the landfill.
3. The negative externalities of the landfill in Cape Town are examples of:
a. Consumer externalities
b. Producer externalities
4. If a private company locates its Energy Recovery Plant near the landfill to produce energy
from waste what kind of pecuniary externalities that company may enjoy (choose one answer
only from the list):
a. The company gets to buy waste at a subsidized price from the Municipality, as the
Government wants to promote renewable energy production.
b. The company has reduced cost for waste collection, as it does not need to hire trucks and
employ people for door-to-door garbage collection.
c. Both a & b are correct answers.
5. In the following diagram, in the absence of any Government intervention or control over
garbage production by the consumers, what is the efficient level of waste that will be produced by
the consumers (choose one answer from the list)?
a.
b.
c.
d.

C, 2 million tons
C, 4 million tons
K, 2million tons
K, 4 million tons

 $ cost per ton of waste produced

Urban Economics: 335

2nd October 2014
Bipasha Chatterjee

6. In this example assume that the efficient level of garbage production costs $10 per ton of waste
(produced by the consumers); however, negative externalities of waste production cause an
external damage cost of $5 per ton of waste. Mark in the diagram the location of $15 per ton
waste that includes the social damage cost of $5.
7. An unregulated market produces too ____________ of garbage with negative externalities and
too _____________ of a good with an external benefit.
a.
b.
c.
d.

much; much
much; little
little; much
little; little

8. Choose the right answer/answers:

a. Social Marginal Cost = Private Marginal Cost Social Marginal Damage
b. Social Marginal Cost = Private Marginal Cost + Social Marginal Damage
c. Private Marginal Benefit = Social Marginal Benefit Social Marginal Damage
d. Private Marginal Benefit =Social Marginal Benefit + Social Marginal Damage
9. Connect the concepts listed under column A with the concepts listed under column B by
joining them with a straight line:
A

Negative production externality:

SMC curve lies below PMC curve

Positive production externality:

SMB curve lies above PMB curve

Negative consumption externality

SMC curve lies above PMC curve

Positive consumption externality:

SMB curve lies below PMB curve

Urban Economics: 335

2nd October 2014
Bipasha Chatterjee
10. Complete the definition by filling in the blanks:
a. Pecuniary agglomeration economies or externalities reduce the ___________ of inputs without
affecting their productivity.
b. Economies of scale operate internally within a firm, without regard to the external
environment. Agglomeration economies operate ___________(internally within/external to) a
firm.
11. Fill in the blanks by choosing the right answer from the multiple-choice list:
Average cost tells the producer how much the average or typical unit of output costs to produce
is. Marginal cost, meanwhile, tells the producer how much the last unit of output costs to produce
is. A government subsidy to a firm aims to ___________ average cost of production in the long
run and tax on a firm aims to __________ average cost of production in the long run.
a.
b.
c.
d.

Increase, increase
Decrease, decrease
Increase, decrease
Decrease, increase

12. Fill in the blanks:

The Environmental Kuznets curve shows the relationship between environmental degradation and
___________________. The relationship between these two factors is represented by an inverted
U shaped curve. When property rights are well defined in a city the inverted U curve is
________________ (flatter / steeper).
13. Complete the definition by choosing the right answer/answers:
Sustainable development seeks to ensure that we meet our needs of the present
a.
b.
c.
d.

without compromising the ability of future generations to meet their own needs.
without decreasing the per capita utility of future generation.
by maximizing our utility.
by aiming for Pareto optimality.

14. True or False:

a. Herman Daly is a proponent of the weak sustainability paradigm which believes that
natural capital can be substituted with man made capital both as inputs into the production
process or as consumption goods.
b. Robert Solow is a proponent of weak sustainability paradigm that believes natural capital
can be substituted with man-made capital.
c. Herman Daly is the proponent of Strong Sustainability paradigm that believes natural
resources are non-substitutable
e. Weak Sustainability paradigm believes in reducing consumption of natural resources.
f. Strong sustainability paradigm promotes conservation of natural resources.