Question 1

List three alternative ways in which the government can correct for pollution generated by a firm.

Accepted Answer

(1)Taxes
(2)Marketable pollution rights
(3)Command-and-control policies

Question 2

Firms that can only lower pollution at a high cost will have a high willingness to pay for pollution permits.

Accepted Answer

A) True 
 B)False  True

Question 3

A tax or charge equal to the external cost per unit of pollution is called abatement.

Accepted Answer

A) True 
 B)False  False

Question 4

Water pollution is not an example of an external cost.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a problem that occurs with command-and-control policies?

Accepted Answer

A) lead to increased pollution 
B) decrease the firm's incentives to develop more efficient abatement technologies 
C) An abatement technology that is efficient for one firm may be inefficient for others. 
D) B and C are correct. 
A) lead to increased pollution 
B) decrease the firm's incentives to develop more efficient abatement technologies 
C) An abatement technology that is efficient for one firm may be inefficient for others. 
D) B and C are correct.

Question 6

For which of the following goods would the imposition of a tax most likely improve the efficiency of the market outcome?

Accepted Answer

A) the production of a good with external benefits 
B) the production of a rival good with no external costs 
C) the production of a good with external costs 
D) the production of a public good 
A) the production of a good with external benefits 
B) the production of a rival good with no external costs 
C) the production of a good with external costs 
D) the production of a public good

Question 7

What is an external cost?

Accepted Answer

An external cost occurs when p

Question 8

Under a traditional pollution regulation,the government tells each firm how much pollution to abate and what abatement techniques to implement.

Accepted Answer

A) True 
 B)False

Question 9

In essence,a pollution tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 10

Taxes on a firm's external costs:

Accepted Answer

A) are designed to encourage more production. 
B) are meant to force some firms out of business. 
C) are simply meant to force decision makers to consider the full costs of their actions. 
D) are designed primarily as a way to raise money so that the government can compensate the victims of the spillover. 
A) are designed to encourage more production. 
B) are meant to force some firms out of business. 
C) are simply meant to force decision makers to consider the full costs of their actions. 
D) are designed primarily as a way to raise money so that the government can compensate the victims of the spillover.

Question 11

About one-third of the annual costs from automobile collisions is borne by the driver who causes the collision.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that a paper producer dumps its waste into a local river.Explain why this situation is inefficient.

Accepted Answer

Firms maximize profit by taking into acc

Question 13

A power plant is emitting nitrogen oxides,a contributing factor in acid rain and in urban smog.If the power plant is taxed on the emission of nitrogen oxides then we can expect the amount of energy produced by the power plant to decrease.

Accepted Answer

A) True 
 B)False

Question 14

When will firms produce an output level that is above the socially efficient level?

Accepted Answer

A) There are external costs of production equal to marginal benefits. 
B) There are internal costs of production and firms do not have to account for them. 
C) There are external costs of production and firms do not have to account for them. 
D) There are external costs of production and firms have account for them. 
A) There are external costs of production equal to marginal benefits. 
B) There are internal costs of production and firms do not have to account for them. 
C) There are external costs of production and firms do not have to account for them. 
D) There are external costs of production and firms have account for them.

Question 15

Under a system of marketable pollution permits,the ________ amount of permits supplied,the ________ the equilibrium price charged for each permit:

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower;lower 
D) It cannot be determined. 
A) higher;higher 
B) higher;lower 
C) lower;lower 
D) It cannot be determined.

Question 16

If the government were to limit the release of air pollution produced by a chemical company to 20,000 units,this policy would be considered a:

Accepted Answer

A) command-and-control policy. 
B) subsidy. 
C) market-based solution. 
D) tax. 
A) command-and-control policy. 
B) subsidy. 
C) market-based solution. 
D) tax.

Question 17

Recall the application about taxing different groups of drivers a different tax rate based on ages.The goal of taxing drivers for each mile they drive is to:

Accepted Answer

A) keep insurance rates high. 
B) generate tax revenue to repair roads. 
C) internalize the external costs from collisions. 
D) get elderly drivers off the highways. 
A) keep insurance rates high. 
B) generate tax revenue to repair roads. 
C) internalize the external costs from collisions. 
D) get elderly drivers off the highways.

Question 18

In markets where external costs exist,efficiency cannot be enhanced by the creation of marketable pollution permits.

Accepted Answer

A) True 
 B)False

Question 19

The government imposes taxes on firms which generate external costs in an effort to:

Accepted Answer

A) make it easier for economists to measure external costs. 
B) lead to a zero level of output. 
C) force decision makers to consider the full costs of their actions. 
D) lower the firms' costs of production. 
A) make it easier for economists to measure external costs. 
B) lead to a zero level of output. 
C) force decision makers to consider the full costs of their actions. 
D) lower the firms' costs of production.

Question 20

How does a system of marketable pollution permits affect the total cost of pollution abatement? Explain.

Accepted Answer

Allowing firms to sell pollution permits

List three alternative ways in which the government can correct for pollution generated by a firm.

Firms that can only lower pollution at a high cost will have a high willingness to pay for pollution permits.

A tax or charge equal to the external cost per unit of pollution is called abatement.

Water pollution is not an example of an external cost.

Which of the following is a problem that occurs with command-and-control policies?

For which of the following goods would the imposition of a tax most likely improve the efficiency of the market outcome?

What is an external cost?

Under a traditional pollution regulation,the government tells each firm how much pollution to abate and what abatement techniques to implement.

In essence,a pollution tax places a price on the right to pollute.

Taxes on a firm's external costs:

About one-third of the annual costs from automobile collisions is borne by the driver who causes the collision.

Suppose that a paper producer dumps its waste into a local river.Explain why this situation is inefficient.

A power plant is emitting nitrogen oxides,a contributing factor in acid rain and in urban smog.If the power plant is taxed on the emission of nitrogen oxides then we can expect the amount of energy produced by the power plant to decrease.

When will firms produce an output level that is above the socially efficient level?

Under a system of marketable pollution permits,the amount of permits supplied,the the equilibrium price charged for each permit:

If the government were to limit the release of air pollution produced by a chemical company to 20,000 units,this policy would be considered a:

Recall the application about taxing different groups of drivers a different tax rate based on ages.The goal of taxing drivers for each mile they drive is to:

In markets where external costs exist,efficiency cannot be enhanced by the creation of marketable pollution permits.

The government imposes taxes on firms which generate external costs in an effort to:

How does a system of marketable pollution permits affect the total cost of pollution abatement? Explain.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Imperfect Information: Adverse Selection and Moral Hazard

Public Goods and Public Choice

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Exam 16: External Costs and Environmental Policy

List three alternative ways in which the government can correct for pollution generated by a firm.

Firms that can only lower pollution at a high cost will have a high willingness to pay for pollution permits.

A tax or charge equal to the external cost per unit of pollution is called abatement.

Water pollution is not an example of an external cost.

Which of the following is a problem that occurs with command-and-control policies?

For which of the following goods would the imposition of a tax most likely improve the efficiency of the market outcome?

What is an external cost?

Under a traditional pollution regulation,the government tells each firm how much pollution to abate and what abatement techniques to implement.

In essence,a pollution tax places a price on the right to pollute.

Taxes on a firm's external costs:

About one-third of the annual costs from automobile collisions is borne by the driver who causes the collision.

Suppose that a paper producer dumps its waste into a local river.Explain why this situation is inefficient.

A power plant is emitting nitrogen oxides,a contributing factor in acid rain and in urban smog.If the power plant is taxed on the emission of nitrogen oxides then we can expect the amount of energy produced by the power plant to decrease.

When will firms produce an output level that is above the socially efficient level?

Under a system of marketable pollution permits,the ________ amount of permits supplied,the ________ the equilibrium price charged for each permit:

If the government were to limit the release of air pollution produced by a chemical company to 20,000 units,this policy would be considered a:

Recall the application about taxing different groups of drivers a different tax rate based on ages.The goal of taxing drivers for each mile they drive is to:

In markets where external costs exist,efficiency cannot be enhanced by the creation of marketable pollution permits.

The government imposes taxes on firms which generate external costs in an effort to:

How does a system of marketable pollution permits affect the total cost of pollution abatement? Explain.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Imperfect Information: Adverse Selection and Moral Hazard

Public Goods and Public Choice

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Under a system of marketable pollution permits,the amount of permits supplied,the the equilibrium price charged for each permit: