Deck 13: The Environment, Health, and Safety

Question 1

The overconsumption of medical care due to first-dollar health insurance coverage is:

A)larger the lower the elasticity of demand for medical care.
B)smaller the higher the elasticity of demand for medical care.
C)larger the higher the elasticity of demand for medical care.
D)small regardless of the elasticity of demand for medical care.

Answer 1

larger the higher the elasticity of demand for medical care.

Question 2

The growth of medical insurance in general and first-dollar coverage specifically has reduced the marginal cost of treatment to the consumer. Therefore, the current level of medical treatment in the United States is:

A)equal to the efficient level.
B)less than the efficient level.
C)greater than the efficient level.
D)less than or equal to the efficient level.

Answer 2

greater than the efficient level.

Question 3

First-dollar insurance coverage means that:

A)most of the insured's expenses are covered.
B)some of the insured's expenses are covered.
C)all of the insured's expenses are covered.
D)the first 10% of the insured's expenses are covered.

Answer 3

all of the insured's expenses are covered.

Question 4

According to the text, the allocation of scarce health care resources should be:

A)determined by length of time on a waiting list.
B)based on the willingness to pay of the recipient of the care.
C)based on the degree of suffering of the recipient of the care.
D)determined by weighing marginal costs and marginal benefits.

Question 5

If the marginal cost of treating an illness is zero, then the optimal amount of treatment to receive is the amount:

A)for which the marginal benefit of treatment is zero.
B)that makes the patient is as healthy as possible.
C)for which the average benefit of treatment is zero.
D)for which the total benefit of treatment is zero.

Question 6

The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200. If Ava had first-dollar medical insurance, then she would choose to stay ______ day(s) in the hospital.

A)4
B)1
C)2
D)3

Question 7

The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200. Compared to when Ava has to pay the entire marginal cost of spending a day in the hospital, what is the loss in total economic surplus that would result from Ava having a first-dollar insurance plan?

A)$100
B)$200
C)$300
D)$400

Question 8

Under a first-dollar health insurance plan, the patient's marginal cost of treating a covered illness is:

A)positive.
B)zero.
C)negative.
D)a percentage of the total cost.

Question 9

Insurance that pays all expenses generated by the insured activity is known as:

A)total-dollar insurance coverage.
B)last-dollar insurance coverage.
C)cradle-to-grave insurance coverage.
D)first-dollar insurance coverage.

Question 10

Relative to when a patient has first-dollar medical insurance, the loss in total economic surplus would be smaller if:

A)medical care providers had to pay the full marginal cost of medical care.
B)medical care providers had to pay more of the marginal cost of medical care.
C)the patient had to pay less of the marginal cost of medical care.
D)the patient had to pay at least some of the marginal cost of medical care.

Question 11

Medical insurance covering routine medical care became common:

A)around 1900.
B)in the 1920's.
C)after World War II.
D)during the 1980's.

Question 12

The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200. If Ava had to pay the entire marginal cost of spending a day in the hospital, then she would choose to stay ______ day(s).

A)0
B)1
C)2
D)3

Question 13

First-dollar health insurance reduces the:

A)equilibrium amount of medical care received by the insured.
B)marginal benefit of medical care to the insured.
C)marginal cost of medical care to the insured.
D)total cost of providing medical care.

Question 14

When Dale visits the doctor, Dale does not pay for either the visit or any tests the doctor may order. From this we can infer that Dale must:

A)be a member of an HMO.
B)have a medical insurance policy with a deductible.
C)have first-dollar medical insurance coverage.
D)be underutilizing medical care.

Question 15

According to the textbook, the percentage of gross domestic product devoted to healthcare between the years 1940 and 2013:

A)declined from 4% to less than 2%.
B)increased from 4% to about 6%.
C)increased from 4% to more than 17%.
D)increased from 4% to more than 40%.

Question 16

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. What is the marginal cost of one extra check-up?

A)$50
B)$100
C)$150
D)$200

Question 17

Prior to World War II most consumers in the United States:

A)owned medical insurance for catastrophic illness but paid for routine medical care out of their own pockets.
B)paid for catastrophic illness out of their own pockets but owned medical insurance for routine medical care.
C)had no medical insurance of any type.
D)owned medical insurance covering both catastrophic illness and routine medical care.

Question 18

In the United States, the emergence of the third-party payment system explains ______ of the increase in health care expenditures from 1940 to the present.

A)all
B)a great deal
C)almost none
D)none

Question 19

To the patient, the marginal cost of medical care is zero under:

A)government-sponsored health care coverage.
B)first-dollar health insurance coverage.
C)an HMO.
D)no circumstances.

Question 20

In general, the optimal amount of medical care is:

A)as much as one can afford.
B)enough to stay healthy.
C)the quantity at which the total cost of the care equals its total benefit.
D)the quantity at which the marginal cost of the care equals its marginal benefit.

Question 21

When Cody went to the physician with a sore elbow, after hearing Cody's symptoms and examining the elbow manually, Cody's physician had two options: (1) prescribe an anti-inflammatory drug and advise Cody to abstain from vigorous physical activity for a period; or (2) advise Cody to undergo a magnetic resonance imaging (MRI) exam, a costly diagnostic procedure. Which of the following physicians is more likely to recommend option 1?

A)A physician who is compensated under a conventional health insurance plan.
B)A physician who is part of an HMO.
C)A physician who is not concerned about the marginal cost of an MRI.
D)All physicians would recommend option 1.

Question 22

Compared to patients covered by conventional health insurance plans, patients in HMOs might receive fewer medical services because HMOs:

A)have legal protection from malpractice lawsuits.
B)employ lower quality doctors.
C)receive a fixed annual fee regardless of the amount of medical services provided.
D)save costs by purchasing lower quality medical equipment.

Question 23

The textbook cites a study comparing a group of consumers with first-dollar coverage to a group with a $1,000 deductible. The study results indicate that those with the deductible spent _____ on health care and had ______ health outcomes.

A)less; the same
B)more; better
C)more; the same
D)less; worse

Question 24

The defining characteristic of an HMO is:

A)the emphasis on acute medical treatment.
B)that medical treatment is provided for a fixed annual fee.
C)that patients have the freedom to see nonmember physicians.
D)that medical treatment is provided on a fee-for-service basis.

Question 25

In contrast to first-dollar insurance coverage, one concern about HMOs is that:

A)the price of medical care will be too low.
B)acute treatment will be overemphasized.
C)patients will receive more medical care than they need.
D)patients will not receive adequate medical care.

Question 26

According to the textbook, Manning and his colleagues found that people with $1,000-deductible policies spent ­______ on health care relative to people with first-dollar coverage.

A)less
B)40 percent more
C)the same amount
D)50 percent more

Question 27

If fewer families purchase health insurance because of rising health insurance premiums, then health insurance premiums are likely to rise further due to:

A)first-dollar coverage.
B)commitment problems.
C)moral hazard.
D)adverse selection.

Question 28

According to the textbook, the Manning study suggests that a large share of the increase in medical expenditures since World War II has been caused by:

A)advances in medical technology.
B)the increase in high-deductible policies.
C)the annual stipend given to the poor to defray medical expenses.
D)the increase in first-dollar medical insurance.

Question 29

Suppose the figure below shows Annie's demand curve for physical therapy. The marginal cost of each visit to the physical therapist is $150. Relative to when Annie has to pay the entire marginal cost of each visit, the loss of total economic surplus due to first-dollar medical insurance would be ______ per year.

A)$150
B)$1,125
C)$2,250
D)$4,500

Question 30

According to the Manning study, people with $1,000-deductible health care coverage had:

A)better health outcomes than those with first-dollar coverage.
B)the same health outcomes as those with first-dollar coverage.
C)worse health outcome than those with first-dollar coverage.
D)worse health outcomes than those with no insurance coverage.

Question 31

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. Relative to when Luke has to pay the entire marginal cost of each check-up, the loss of total economic surplus due to first-dollar medical insurance would be ______ per year.

A)$100
B)$200
C)$300
D)$400

Question 32

Suppose the figure below shows Annie's demand curve for physical therapy. The marginal cost of each visit to the physical therapist is $150. If Annie had first-dollar medical insurance, then she would choose to have _____ visits a year.

A)40
B)25
C)10
D)0

Question 33

An economic argument in favor of providing medical care through HMOs is that they:

A)increase provision of care to the sickest patients.
B)reduce incentives for providing unnecessary or excessive care.
C)reduce the cost of seeing a specialist.
D)reduce the probability of patients filing a malpractice claim.

Question 34

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. If Luke had to pay the entire marginal cost of each check-up, then he would choose to have ­______ check-ups a year.

A)5
B)1
C)2
D)3

Question 35

If fewer families choose to purchase medical insurance because of rising health insurance premiums, then:

A)those who remain insured will tend to spend less on health care.
B)those who remain insured will tend to have higher-than-average rates of illness.
C)the frequency of illness in the general population will fall.
D)those who remain insured will tend to have lower-than-average rates of illness.

Question 36

When Cody went to the physician with a sore elbow, after hearing Cody's symptoms and examining the elbow manually, Cody's physician had two options: (1) prescribe an anti-inflammatory drug and advise Cody to abstain from vigorous physical activity for a period; or (2) advise Cody to undergo a magnetic resonance imaging (MRI) exam, a costly diagnostic procedure. Which of the following physicians is more likely to recommend option 2?

A)A physician who is compensated under a conventional health insurance plan.
B)A physician who is part of an HMO.
C)A physician who is concerned about the marginal cost of an MRI.
D)All physicians would recommend option 2.

Question 37

A group of physicians that provides medical services to members for a fixed annual fee is termed a:

A)health management organization.
B)fee-for-service plan.
C)partnership.
D)health maintenance organization.

Question 38

All else equal, the amount of waste caused by full health insurance is:

A)larger the lower is the price elasticity of demand for medical services.
B)larger the higher is the price elasticity of demand for medical services.
C)larger the lower is the price elasticity of supply for medical services.
D)smaller the higher is the price of medical services.

Question 39

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. If Luke had first-dollar medical insurance, then he would choose to have _____ check-ups a year.

A)5
B)2
C)3
D)4

Question 40

Suppose the figure below shows Annie's demand curve for physical therapy. The marginal cost of each visit to the physical therapist is $150. If Annie had to pay the entire marginal cost of each visit to the physical therapist, then she would choose to have ­______ visits a year.

A)40
B)25
C)10
D)0

Question 41

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \\\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \\\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \\\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \\\hline\end{array}$
Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20%, then the firms will adopt process ______, and a total of ______ tons of smoke will be emitted each day.

A)A; 18
B)B; 16
C)C; 12
D)D; 8

Question 42

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
If pollution is unregulated, then total daily smoke emission will be ______ tons.

A)4
B)12
C)9
D)8

Question 43

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. $$\begin{array} { | c | c | c | c | c | c | } \hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 ton/day) } & \text { (0ns/day) } \\\hline \text { Cost to Dirty Inc. (\$/day) } & \$ 110 & \$ 200 & \$ 380 & \$ 740 & \$ 1,460 \\\hline \text { Cost to Filthy Inc. (\$/day) } & \$ 400 & \$ 430 & \$ 490 & \$ 580 & \$700\\\hline\end{array}$$ If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then what will be the total cost to society of the resulting reduction in pollution?

A)$90
B)$180
C)$270
D)$360

Question 44

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

A)efficient.
B)inefficient
C)ineffective.
D)fair to all polluters.

Question 45

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \\\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \\\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \\\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \\\hline\end{array}$
Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20%, then the total cost to society of this policy will be ______ per day.

A)$300
B)$950
C)$1,550
D)$2,350

Question 46

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \\\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \\\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \\\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \\\hline\end{array}$
If pollution is unregulated, the two firms will produce using process ______, and a total of ______ tons of smoke will be emitted each day.

A)C; 12
B)D; 4
C)B; 16
D)A; 20

Question 47

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. $$\begin{array} { | c | c | c | c | c | c | } \hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 ton/day) } & \text { (0ns/day) } \\\hline \text { Cost to Dirty Inc. (\$/day) } & \$ 110 & \$ 200 & \$ 380 & \$ 740 & \$ 1,460 \\\hline \text { Cost to Filthy Inc. (\$/day) } & \$ 400 & \$ 430 & \$ 490 & \$ 580 &\$700 \\\hline\end{array}$$ If pollution is unregulated, then a total of ______ tons of smoke will be emitted each day.

A)1
B)2
C)4
D)8

Question 48

For a fixed percent reduction in pollution emissions to be economically efficient, it would have to be the case that:

A)the marginal cost of pollution control is the same across all firms.
B)enforcement is vigorous.
C)all firms be the same size.
D)large polluters reduce emissions by more than small polluters.

Question 49

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. $$\begin{array} { | c | c | c | c | c | c | } \hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 ton/day) } & \text { (0ns/day) } \\\hline \text { Cost to Dirty Inc. (\$/day) } & \$ 110 & \$ 200 & \$ 380 & \$ 740 & \$ 1,460 \\\hline \text { Cost to Filthy Inc. (\$/day) } & \$ 400 & \$ 430 & \$ 490 & \$ 580 & \$700\\\hline\end{array}$$ Suppose pollution is initially unregulated. If the City Council requires each firm to reduce emissions by 50 percent, then the total cost to society of this policy will be ______ per day.

A)$360
B)$380
C)$490
D)$870

Question 50

The most efficient distribution of pollution abatement is such that the:

A)extent of pollution abatement is the same across all geographic regions.
B)extent of pollution abatement is the same across all polluters.
C)largest reductions in pollution are made by the largest polluters.
D)marginal cost of abatement is the same across all polluters.

Question 51

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
Suppose the government decides to impose a tax on each ton of smoke emitted. What would be the lowest tax, in whole dollars, that would reduce emissions to 6 tons per day?

A)$21 per ton
B)$26 per ton
C)$36 per ton
D)$41 per ton

Question 52

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
Suppose the government imposes a tax of $21 on each ton of smoke emitted. To minimize costs, Firm X will emit ______ tons; Firm Y will emit ______ tons, and Firm Z will emit ______ tons.

A)1; 2; 3
B)2; 3; 4
C)3; 4; 4
D)1; 2; 4

Question 53

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
It would cost Firm X ______ to reduce emissions by one ton if it currently emits 3 tons, and ______ to reduce emissions by one ton if it currently emits 2 tons.

A)$14; $25
B)$14; $16
C)$16; $25
D)$30; $55

Question 54

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
For all three firms, the marginal cost of pollution abatement is:

A)increasing
B)decreasing
C)constant
D)decreasing and then increasing

Question 55

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \\\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \\\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \\\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \\\hline\end{array}$
Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, then Acme will use process ______, and FirmCo will use process ______.

A)B; A
B)C; A
C)C; C
D)D; C

Question 56

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \\\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \\\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \\\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \\\hline\end{array}$
Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, a total of ______ tons of smoke will be emitted each day, and the total cost to society of this policy will be ______ per day.

A)14; $500
B)16; $250
C)18; $50
D)20; $0

Question 57

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
Suppose the government requires each firm to reduce pollution to 2 tons of smoke per day, so that total daily smoke emission is 6 tons. The total cost to society of this policy will be ______ per day.

A)$59
B)$42
C)$230
D)$135

Question 58

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for:

A)small firms to reduce pollution by more than large firms.
B)small firms and large firms to reduce pollution by a fixed proportion.
C)small firms and large firms to increase pollution by a fixed proportion.
D)large firms to reduce pollution by more than small firms.

Question 59

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. $\begin{array}{|c|c|c|c|c|c|}\hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & (1 \text { ton/day) } & \text { (0 tons/day) } \\\hline \text { Cost to Firm } X(\$ / \text { day) } & \$ 500 & \$ 514 & \$ 530 & \$ 555 & \$ 585 \\\hline \text { Cost to Firm Y (\$/day) } & \$ 400 & \$ 420 & \$ 445 & \$ 480 & \$ 520 \\\hline \text { Cost to Firm Z(\$/day) } & \$ 300 & \$ 325 & \$ 360 & \$ 400 & \$ 550 \\\hline\end{array}$
The least costly way of lowering smoke emissions from 12 tons to 9 tons per day would be for:

A)each firm to reduce emissions by 1 ton, emitting 3 tons each.
B)Firm X to emit 2 tons, Firm Y to emit 3 tons and Firm Z to emit 4 tons.
C)Firm X to emit 4 tons, Firm Y to emit 3 tons and Firm Z to emit 2 tons.
D)Firm X to emit 1 ton, Firm Y to emit 4 tons and Firm Z to emit 4 tons.

Question 60

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. $$\begin{array} { | c | c | c | c | c | c | } \hline \text { Process } & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 ton/day) } & \text { (0ns/day) } \\\hline \text { Cost to Dirty Inc. (\$/day) } & \$ 110 & \$ 200 & \$ 380 & \$ 740 & \$ 1,460 \\\hline \text { Cost to Filthy Inc. (\$/day) } & \$ 400 & \$ 430 & \$ 490 & \$ 580 &\$700 \\\hline\end{array}$$ Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then total emissions will fall to ______ tons of smoke per day.

A)1
B)2
C)4
D)8

Question 61

Workplace safety laws are ______ in developed countries because _____.

A)rare; policy makers believe that they undermine the free market system
B)rare; corporate lobbyists convince legislators to vote against them
C)necessary; without them firms that hire workers in competitive labor markets would have no incentive to provide safe workplaces
D)common; many policy makers believe that labor markets are not perfectly competitive and so firms will not provide the optimal level of safety

Question 62

Pollution permit policies achieve an ______ outcome because _____.

A)inefficient; wealthier firms can afford to purchase more permits.
B)efficient; firms that have the lowest cost of reducing pollution will be able to pay more for each permit.
C)inefficient; the supply of permits is set by the government, and so is perfectly inelastic.
D)efficient; firms that have the highest cost of reducing pollution will have the greatest incentive to purchase permits.

Question 63

In the absence of environmental protection laws, firms pollute because:

A)business owners follow different norms than do environmentalists.
B)controlling emissions costs money, thereby reducing profits.
C)business owners do not believe that pollution is a problem.
D)the cost pollution imposes on society is small relative to the cost of reducing pollution.

Question 64

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ Suppose the government decides to auction 6 permits. The government conducts the auction by starting at a price of $1 and asking how many permits each firm wants to buy at that price. If the total is more than 6, it raises the price by $1 and asks again until the total quantity demanded falls to 6. Under this system, each permit will sell for ______ with Industrio buying ______ and Capitalista buying ______.

A)$31; 2; 4
B)$41; 4; 2
C)$51; 4; 2
D)$101; 3; 3

Question 65

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The government starts the bidding with an opening price of $30. What happens next?

A)A total of five permits will be demanded, forcing the government to lower the price.
B)Industrio will purchase all available permits at $30.
C)Industrio will demand 3 permits and Capitalista will demand 3 permits.
D)A total of seven permits will be demanded, forcing the government to raise the price.

Question 66

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ Suppose a permit system has been adopted and each firm has already purchased one permit. Industrio would be willing to pay up to ______ for the right to emit a second ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit a second ton of smoke.

A)$200; $300
B)$200; $110
C)$100; $40
D)$500; $290

Question 67

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ If neither firm had any permits, Industrio would be willing to pay up to ______ for the right to emit 1 ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit 1 ton of smoke.

A)$50; $25
B)$1000, $600
C)$50, $50
D)$300, $200

Question 68

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ Given that both firms are currently using process A, if the government decided to auction pollution permits, it would need to sell _____ permits in order to reduce pollution by 25 percent.

A)6
B)4
C)2
D)1

Question 69

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. The two policies being considered will result in the same amount of pollution reduction

A)never.
B)always.
C)only if the equilibrium price in the pollution permit market is $250.
D)only if the equilibrium price in the pollution permit market is greater than $250.

Question 70

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the regulators chose the permit policy instead of the tax policy. What might explain that decision?

A)Permit auctions raise more revenue than do taxes.
B)The permit policy allows regulators to achieve reduction goals without having detailed knowledge about firms' abatement costs.
C)The permit policy will reduce pollution by more than would the tax policy.
D)Firms prefer the permit policy because it allows them to choose the least-costly reduction technology.

Question 71

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the permit policy is adopted. A firm will wish to purchase its first permit if the price of that permit is less than or equal to:

A)the increase in costs associated with reducing its existing emissions by one unit.
B)the lowest cost of eliminating one unit of pollution.
C)the reduction in costs associated with increasing its emissions from zero to one unit.
D)the average cost of eliminating one unit of pollution.

Question 72

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}$$ Given that both firms are currently using process A, the cost of requiring the firms to reduce pollution by 25 percent is ______ per day.

A)$75
B)$375
C)$215
D)$790

Question 73

Compared to taxing pollution, an advantage of auctioning pollution permits is that:

A)the largest reductions in pollution are made by the firms that can do so the most cheaply.
B)auctioning permits raises revenue for the government.
C)it allows the public to directly reduce pollution by purchasing permits.
D)it ensures that all firms reduce pollution by the same amount.

Question 74

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Because firms face increasing marginal costs to reduce pollution, the demand curve for pollution permits will be:

A)upward sloping.
B)downward sloping.
C)perfectly inelastic.
D)perfectly elastic.

Question 75

The use of pollution permits by the government to reduce pollution is:

A)theoretically interesting, but untried in the United States.
B)workable in theory but unworkable in practice.
C)common in several parts of the United States.
D)common in the third world.

Question 76

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the tax policy is adopted. A firm will be willing to pay the tax if $250 is less than or equal to:

A)the cost of reducing its existing pollution by one unit.
B)its marginal revenue.
C)its average total cost of production.
D)the average cost of eliminating one unit of pollution.

Question 77

The primary advantage to selling pollution permits rather than using a fixed percent reduction for all firms is that:

A)the government can raise additional revenue.
B)pollution reduction is accomplished in the least costly way possible.
C)enforcement costs are eliminated.
D)pollution is driven to zero.

Question 78

Compared to a fixed percentage reduction regulation, a tax on pollution encourages:

A)firms to reduce pollution by the same percent.
B)firms to use the same technology to reduce pollution.
C)firms that can more cheaply reduce pollution to make larger reductions.
D)big firms to make larger reductions because they can more easily afford it.

Question 79

Suppose you are an economic researcher, and you have access to detailed information about all of the firms in a given geographic area. You would conclude that the pollution reduction policy in that area is efficient if you observe that:

A)all firms produce approximately the same amount of pollution.
B)the cleanest firms are also the most profitable.
C)the marginal cost of reducing pollution is the same for all firms at current emissions levels.
D)all firms currently use the same pollution reduction technology.

Question 80

The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is:

A)that firms would not pay the tax.
B)that it would cause prices to rise.
C)that it only works in theory.
D)establishing the optimal size of the tax.