Question 1

Taxes on external costs are unlike other taxes because they:

Accepted Answer

A) distort the incentives of the firms being taxed. 
B) move the allocation of resources closer to the social optimum. 
C) lead to a large deadweight loss. 
D) raise revenue for the government. 
A) distort the incentives of the firms being taxed. 
B) move the allocation of resources closer to the social optimum. 
C) lead to a large deadweight loss. 
D) raise revenue for the government.

Question 2

The annual cost of collisions in the U.S.is approximately $300 billion.On average,the driver who causes an accident incurs about ________ of the costs,leaving the rest as an external cost imposed on others.

Accepted Answer

A) one-third 
B) one-fourth 
C) two-thirds 
D) one-half 
A) one-third 
B) one-fourth 
C) two-thirds 
D) one-half

Question 3

Based on society's perspective,what are the benefits from pollution abatement?

Accepted Answer

A) better health 
B) increased enjoyment of the natural environment 
C) lower production costs 
D) all of the above 
A) better health 
B) increased enjoyment of the natural environment 
C) lower production costs 
D) all of the above

Question 4

Recall the application about imposing a tax on the carbon content of energy sources that produce carbon dioxide.Which one of the following would NOT be a result of imposing the carbon tax?

Accepted Answer

A) People would seek more energy efficient homes. 
B) The quantity demanded of electricity would decrease. 
C) People would drive less. 
D) The price of electricity would decrease. 
A) People would seek more energy efficient homes. 
B) The quantity demanded of electricity would decrease. 
C) People would drive less. 
D) The price of electricity would decrease.

Question 5

How is a system of marketable pollution permits set up?

Accepted Answer

Generally,the government will

Question 6

Consumers,not producers,gain from pollution abatement.

Accepted Answer

A) True 
 B)False

Question 7

Additional Application
For the first seven months of 2006 Stockholm,Sweden has been testing a possible solution to the city's traffic congestion.It is called "congestion pricing" and their system includes "small transponder boxes,laser detectors and a network of cameras to track the path of every car…" They want to reduce problems associated with smog and gridlock and,in turn,improve the quality of life.
The experiment recorded each car's registration,the date and time of day,as it passed through specific electronic tolls and calculated a fee that was charged to the car's owner.During the rush hour the fee could be as high as $2.75.But in the evenings the toll would be zero.The expectation is that people will respond to these varying tolls,change their driving habits to be more efficient,and take more public transportation.
The next step is to put a referendum to the voters to decide whether this system will become a permanent feature in the life of Stockholm drivers.
Leila Abboud and Jenny Clevstrom,"Stockholm's Syndrome: Hostages to Traffic,Swedes Will Vote on High-Tech Plan To Untangle Snarls With Tolls," Wall Street Journal,August 29,2006,http://infoweb.newsbank.com,accessed 11/22/06.
-By imposing tolls on the drivers that drive during the busiest times,the government is attempting to:

Accepted Answer

A) internalize an externality. 
B) institute a progressive tax. 
C) externalize an internality. 
D) make Stockholm a famous pedestrian city. 
A) internalize an externality. 
B) institute a progressive tax. 
C) externalize an internality. 
D) make Stockholm a famous pedestrian city.

Question 8

The optimum level of pollution abatement is where the marginal benefit is greater than the marginal cost.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that a paper producer is dumping waste into a nearby river.The government imposes a tax to correct for this external cost.What will be the effects of this pollution tax on the market for paper in a competitive market?

Accepted Answer

The tax will increase the cost

Question 10

Table 16.1
-Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.For Producer X,the marginal cost of reducing waste from 500 gallons to 400 gallons is:

Accepted Answer

A) $1,400 
B) $300 
C) $200 
D) $240 
A) $1,400 
B) $300 
C) $200 
D) $240

Question 11

If a pollution tax is imposed on automobiles,we could expect which of the following to occur?

Accepted Answer

A) less maintenance of emissions equipment 
B) more use of alternative transportation 
C) more miles being driven 
D) all of these 
A) less maintenance of emissions equipment 
B) more use of alternative transportation 
C) more miles being driven 
D) all of these

Question 12

Tradable pollution permits:

Accepted Answer

A) will be sold by firms that have relatively low abatement costs. 
B) reduce the level of pollution to zero. 
C) are likely to lead to a higher total level of pollution in an area. 
D) cause each firm to reduce the level of pollution it generates by the same amount. 
A) will be sold by firms that have relatively low abatement costs. 
B) reduce the level of pollution to zero. 
C) are likely to lead to a higher total level of pollution in an area. 
D) cause each firm to reduce the level of pollution it generates by the same amount.

Question 13

Markets which have external costs will produce ________ output than the socially efficient level whereas markets which have external benefits will produce ________ output than the socially efficient level.

Accepted Answer

A) less;less 
B) more;more 
C) more;less 
D) less;more 
A) less;less 
B) more;more 
C) more;less 
D) less;more

Question 14

Which of the following is an example of an external cost?

Accepted Answer

A) a loud,crying baby in a public restaurant 
B) emissions of methane into the atmosphere 
C) a homeowner who likes to mow the lawn at 7 a.m.on Saturday morning 
D) all of the above 
A) a loud,crying baby in a public restaurant 
B) emissions of methane into the atmosphere 
C) a homeowner who likes to mow the lawn at 7 a.m.on Saturday morning 
D) all of the above

Question 15

One advantage of command-and-control policy is its power to reduce the prices of the goods produced by polluting firms.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would be classified as an external cost?

Accepted Answer

A) As more firms began hiring computer programmers,the salaries of computer programmers increased and therefore the firm's cost of production increased. 
B) You eat too much pizza and end up with a stomachache. 
C) You are not able to study at night because there is so much noise coming from the dorm room next to yours. 
D) When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug. 
A) As more firms began hiring computer programmers,the salaries of computer programmers increased and therefore the firm's cost of production increased. 
B) You eat too much pizza and end up with a stomachache. 
C) You are not able to study at night because there is so much noise coming from the dorm room next to yours. 
D) When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug.

Question 17

Under a command-and-control policy,there is no incentive to develop better abatement techniques.

Accepted Answer

A) True 
 B)False

Question 18

Recall the application about taxing different groups of drivers a different tax rate based on ages.Which one of the following groups would pay the highest tax?

Accepted Answer

A) drivers over 70 years old 
B) drivers over 25 but younger than 70 
C) drivers under 25 years old 
D) All would pay the same rate. 
A) drivers over 70 years old 
B) drivers over 25 but younger than 70 
C) drivers under 25 years old 
D) All would pay the same rate.

Question 19

A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

Accepted Answer

A) True 
 B)False

Question 20

When the government imposes a tax on a firm that generates external costs,the tax is:

Accepted Answer

A) always borne entirely by the firm. 
B) always borne entirely by the consumer. 
C) usually borne by both the firm and the consumer. 
D) borne only by the government. 
A) always borne entirely by the firm. 
B) always borne entirely by the consumer. 
C) usually borne by both the firm and the consumer. 
D) borne only by the government.

Taxes on external costs are unlike other taxes because they:

The annual cost of collisions in the U.S.is approximately $300 billion.On average,the driver who causes an accident incurs about ________ of the costs,leaving the rest as an external cost imposed on others.

Based on society's perspective,what are the benefits from pollution abatement?

Recall the application about imposing a tax on the carbon content of energy sources that produce carbon dioxide.Which one of the following would NOT be a result of imposing the carbon tax?

How is a system of marketable pollution permits set up?

Consumers,not producers,gain from pollution abatement.

The optimum level of pollution abatement is where the marginal benefit is greater than the marginal cost.

Suppose that a paper producer is dumping waste into a nearby river.The government imposes a tax to correct for this external cost.What will be the effects of this pollution tax on the market for paper in a competitive market?

Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.For Producer X,the marginal cost of reducing waste from 500 gallons to 400 gallons is:

If a pollution tax is imposed on automobiles,we could expect which of the following to occur?

Tradable pollution permits:

Markets which have external costs will produce output than the socially efficient level whereas markets which have external benefits will produce output than the socially efficient level.

Which of the following is an example of an external cost?

One advantage of command-and-control policy is its power to reduce the prices of the goods produced by polluting firms.

Which of the following would be classified as an external cost?

Under a command-and-control policy,there is no incentive to develop better abatement techniques.

Recall the application about taxing different groups of drivers a different tax rate based on ages.Which one of the following groups would pay the highest tax?

A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

When the government imposes a tax on a firm that generates external costs,the tax is:

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

Taxes on external costs are unlike other taxes because they:

The annual cost of collisions in the U.S.is approximately $300 billion.On average,the driver who causes an accident incurs about ________ of the costs,leaving the rest as an external cost imposed on others.

Based on society's perspective,what are the benefits from pollution abatement?

Recall the application about imposing a tax on the carbon content of energy sources that produce carbon dioxide.Which one of the following would NOT be a result of imposing the carbon tax?

How is a system of marketable pollution permits set up?

Consumers,not producers,gain from pollution abatement.

The optimum level of pollution abatement is where the marginal benefit is greater than the marginal cost.

Suppose that a paper producer is dumping waste into a nearby river.The government imposes a tax to correct for this external cost.What will be the effects of this pollution tax on the market for paper in a competitive market?

Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.For Producer X,the marginal cost of reducing waste from 500 gallons to 400 gallons is:

If a pollution tax is imposed on automobiles,we could expect which of the following to occur?

Tradable pollution permits:

Markets which have external costs will produce ________ output than the socially efficient level whereas markets which have external benefits will produce ________ output than the socially efficient level.

Which of the following is an example of an external cost?

One advantage of command-and-control policy is its power to reduce the prices of the goods produced by polluting firms.

Which of the following would be classified as an external cost?

Under a command-and-control policy,there is no incentive to develop better abatement techniques.

Recall the application about taxing different groups of drivers a different tax rate based on ages.Which one of the following groups would pay the highest tax?

A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

When the government imposes a tax on a firm that generates external costs,the tax is:

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

Markets which have external costs will produce output than the socially efficient level whereas markets which have external benefits will produce output than the socially efficient level.