Question 1

How is a system of marketable pollution permits set up?

Accepted Answer

The answer of How is a system of marketable pollution...

Question 2

Which of the following is an external cost generated by the use of automobiles?

Accepted Answer

Congested highways impose a time cost on travelers, which is an external cost generated by the use of automobiles. Motor-vehicle accidents and air pollutants are also external costs associated with automobile use. Thus, all of these options, A, B and C, are correct, making D the best choice.

Question 3

Which of the following is the regulation that the U.S.currently use to regulate automobile pollution?

Accepted Answer

The U.S. currently uses the command and control regulation to regulate automobile pollution. This type of regulation sets specific limits and standards that must be met by automobile manufacturers and requires them to use certain technologies to reduce pollution. This approach is sometimes criticized for being inflexible and not allowing for innovation, but it has been effective in reducing emissions from automobiles.

Question 4

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

The goal of taxing drivers for each mile they drive is to internalize the external costs from collisions, meaning that drivers pay for the potential risks and damages they may cause, thereby encouraging safer driving and reducing accidents.

Question 5

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

Accepted Answer

A pollution tax would increase the cost of driving a car, making alternative transportation options more appealing. It would not necessarily lead to less maintenance of emissions equipment or more miles being driven, as these decisions would be up to individual car owners.

Question 6

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

Accepted Answer

If a firm can only lower its pollution at a high cost, then it will be more willing to pay for pollution permits which allow it to continue polluting at a set level. This is because the cost of reducing pollution would be greater than the cost of purchasing permits.

Question 7

How is the price of a marketable pollution permit determined?

Accepted Answer

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Question 8

A market for pollution permits can efficiently allocate the right to pollute.

Accepted Answer

With a market for pollution permits, polluters are given a specific allowance of pollution and can buy or sell permits based on their emissions needs. This creates a flexible and efficient system where companies that can reduce emissions easily can sell permits to companies that find it more difficult and expensive to do so. This incentivizes companies to reduce emissions as much as possible while allowing the market to allocate pollution rights to those who need them most.

Question 9

The ability of marketable pollution permits to efficiently lower the level of pollution is dependent on the initial allocation of the permits.

Accepted Answer

The efficiency in lowering pollution levels through marketable pollution permits is primarily due to the market mechanism allowing permits to be bought and sold, not the initial allocation. This system incentivizes reductions where they are most cost-effective, regardless of the initial distribution of permits.

Question 10

To internalize the external costs from traffic congestion,policymakers could:

Accepted Answer

By establishing a congestion tax, drivers are forced to pay for the external costs they are causing by contributing to traffic congestion. This incentivizes them to find alternative modes of transportation or times to travel, reducing congestion overall. The other options do not address the external costs of congestion and may have unintended consequences, such as limiting personal freedoms or reducing consumer choice.

Question 11

The primary source of smog-causing pollutants is:

Accepted Answer

Automobiles are the primary source of smog-causing pollutants, particularly from the combustion of fossil fuels in their engines. Power plants and airplanes also contribute to smog formation, but to a lesser extent. Charcoal grills can emit small amounts of pollutants, but are not a significant source of smog-causing pollutants on a large scale.

Question 12

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

Accepted Answer

Marketable pollution permits create a market for pollution where the cost of pollution is priced in, increasing the efficiency of the market by internalizing the externality. This is why they are commonly used as a policy tool to address externalities such as pollution or carbon emissions.

Question 13

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

According to the given statement, the annual cost of collisions in the US is approximately $300 billion. It also states that the driver who causes an accident incurs about 1/3rd of the costs, leaving the rest as an external cost imposed on others. So, the external cost imposed on others can be calculated as follows: External cost = Total cost - Cost incurred by the driver who caused the accident.

External cost = $300 billion - ($300 billion * 1/3)

External cost = $300 billion - $100 billion

External cost = $200 billion

Therefore, the driver who causes an accident incurs one-third (1/3) of the costs, leaving the rest two-thirds (2/3) as an external cost imposed on others. Hence, the best choice is C.

Question 14

Firms that can reduce pollution at a low cost will be willing to sell their pollution permits.

Accepted Answer

When a firm can reduce pollution at a low cost, they will have extra pollution permits that they can sell to other firms, who cannot reduce pollution as cheaply. This creates a market for pollution permits, allowing firms to trade and buy/sell permits to reach their desired pollution levels.

Question 15

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

Accepted Answer

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Question 16

Recall the application of how the European Union has a cap-and-trade system for CO2 allowances.The demand of allowances is determined by different factors such as level of economic activity,fuel prices,and the weather.

Accepted Answer

The demand for CO2 allowances in the European Union cap-and-trade system is determined by factors such as level of economic activity, fuel prices, and weather conditions.

Question 17

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

Typically, younger drivers are considered higher risk due to lack of experience and higher likelihood of engaging in reckless behavior. Therefore, they would be charged a higher tax rate in this scenario.

Question 18

The Environmental Protection Agency requires that automakers install equipment in vehicles that lowers emissions.In most cases a more efficient way of lowering the pollution generated by cars is to:

Accepted Answer

Creating an annual pollution tax on each car incentivizes both manufacturers and consumers to reduce emissions, as it directly ties the cost of owning a car to its environmental impact. This approach encourages the development and purchase of more efficient, less polluting vehicles.

Question 19

Another name for marketable pollution permits is a cap-and-trade system.

Accepted Answer

Marketable pollution permits and cap-and-trade system are two interchangeable terms for the same system in which companies can buy and sell permits to emit a certain amount of pollution.

Question 20

The Clean Air Act of 1990 established a system of marketable pollution permits for SO₂.

Accepted Answer

The Clean Air Act of 1990 did establish a system of marketable pollution permits for certain pollutants, such as sulfur dioxide.

Quiz 16: External Costs and Environmental Policy