Question 1

A pollution tax is:

Accepted Answer

A pollution tax is a price per unit of pollution discharged by a firm, usually imposed by the government. The aim of the tax is to make it more expensive to pollute, thereby incentivizing firms to reduce their pollution levels. This is a way of internalizing the negative externality associated with pollution, as firms are incentivized to reduce pollution levels rather than impose the costs of their pollution on society.

Question 2

Government regulations that set an environmental goal and dictate how the goal will be achieved are called:

Accepted Answer

Command-and-control regulations are regulations that set environmental goals and dictate how those goals will be achieved through specific policies and rules. These regulations often involve imposing restrictions or requirements on polluters or mandating the use of specific technologies or practices to reduce emissions or other harmful impacts.

Question 3

Exhibit 14-1 Private and social cost 
-Use Exhibit 14-1 to answer the following question. To maximize social welfare, the firm should produce at the output rate:

Accepted Answer

The answer of Exhibit 14-1 Private and social cost 
-Use...

Question 4

Which of the following statements is true?

Accepted Answer

Command-and-control regulations set specific guidelines for achieving an environmental goal, while incentive-based programs create economic incentives to encourage firms to reduce pollution. Economists generally prefer incentive-based programs as they allow firms to find the most cost-effective way to meet the goal, while command-and-control regulations can be inflexible and impose high compliance costs. A is false, as externalities can cause market failure in a competitive market. C is false, as stated previously, economists generally prefer incentive-based programs to command-and-control. D is false, as an effluent tax is based on the amount of pollutants released, not on the wealth of the polluter.

Question 5

Incentive-based regulations:

Accepted Answer

A) Incentive-based regulations set an environmental goal, but provide flexibility on how to achieve the goal.
B) Incentive-based regulations can often result in greater efficiency gains than command-and-control (CAC) regulations.
C) Effluent taxes are one example of incentive-based regulations.

Question 6

In order to achieve social efficiency, the size of an effluent tax should be based on:

Accepted Answer

The size of an effluent tax should be based on the external cost created by the pollutant. This is because the goal of an effluent tax is to internalize the externality by making firms pay for the damage they cause to the environment. The tax should be equal to the marginal external cost, which is the cost imposed on society by each additional unit of pollution.

Question 7

Markets for pollution rights:

Accepted Answer

Markets for pollution rights allow companies that value the ability to pollute the most to purchase the rights, thus enabling them to pollute legally within the limits set by the market.

Question 8

Which of the following is the best example of a command-and-control regulation?

Accepted Answer

Requiring automobiles to have catalytic converters is a command-and-control regulation because it mandates a specific technology for reducing emissions, and does not provide any flexibility or market-based incentives. Effluent taxes and emissions trading, on the other hand, are market-based approaches to environmental regulation, while offset programs incentivize pollution reduction and mitigation projects rather than mandating them.

Question 9

An example of the command-and-control approach to environmental policy is:

Accepted Answer

The answer of An example of the command-and-control approach to...

Question 10

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Accepted Answer

Since the government is only allowing a limited amount of pollution, individuals or firms who are most willing and able to pay for the right to pollute will purchase the transferable rights. This means that those who are generating the pollution will be those most willing and able to pay for it. The funds collected by the government from selling these rights do not necessarily guarantee compensation for individuals harmed by the pollution. The law does not necessarily mean pollution will increase, but rather it sets a limit on the amount of pollution that can be generated.

Question 11

Incentive-based regulatory approaches:

Accepted Answer

Incentive-based regulatory approaches, such as cap-and-trade systems and emissions taxes, are typically viewed favorably by most economists as they provide firms with the flexibility to choose the most cost-effective way to reduce pollution. This can lead to a more efficient allocation of resources and ultimately result in lower overall costs for society.

Question 12

Which of the following is not a reason why marketable permits may fail to achieve efficiency?

Accepted Answer

Some firms can reduce emissions at a lower cost than other firms. This is a reason why marketable permits may achieve efficiency.

Question 13

Solar vehicles that operate on photovoltaic cells:

Accepted Answer

Solar vehicles that operate on photovoltaic cells are not economically efficient even though they create fewer negative externalities than gasoline vehicles. The technology is expensive, and the performance of solar cells is limited, making solar vehicles less practical for day-to-day use. Additionally, the production, maintenance, and disposal of solar cells can have negative environmental impacts, further undermining their economic efficiency. While subsidies may help to reduce the costs of solar vehicles, they are unlikely to make them economically competitive with gasoline vehicles in the near future.

Question 14

Command-and-control regulation, as compared to incentive-based regulation, is:

Accepted Answer

Command-and-control regulation is generally considered inefficient both in the short run and long run because it often involves rigid requirements that do not encourage innovation or cost-effective compliance strategies.

Question 15

In order to increase society's total welfare (social efficiency), a production process that produces a negative externality should be:

Accepted Answer

A production process that produces a negative externality imposes a cost on society that is not reflected in the price of the good or service. Therefore, the optimal solution is to tax the production process in order to reflect the full social cost of the activity. This will discourage the production of the activity and encourage producers to seek alternatives that do not impose costs on society. Subsidies and ignoring the externality would only exacerbate the problem, and providing the production process by the government would result in inefficiency and potential rent-seeking behavior.

Question 16

Exhibit 14-1 Private and social cost 
-The perfectly competitive profit-maximizing firm in Exhibit 14-1 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to:

Accepted Answer

In a perfectly competitive market, firms maximize profit by producing where marginal cost equals marginal revenue. If pollution costs are externalized, the firm will not account for them and will produce at a higher output level, such as Q₄, where private costs are minimized, ignoring social costs.

Question 17

An example of the command-and-control approach to environmental policy is:

Accepted Answer

Option B is an example of the command-and-control approach to environmental policy as it requires car producers to install new air conditioners that do not use freon, leaving them with no choice but to comply with the regulation. In contrast, options A and C use market-based mechanisms to incentivize reductions in CFC emissions, while option D relies on litigation to enforce government standards.

Question 18

When using the traditional command-and-control approach to environmental regulation, the government attempts to:

Accepted Answer

When using the traditional command-and-control approach to environmental regulation, the government sets standards that are applicable to all situations and does not recognize unique circumstances. This approach is often criticized for being inflexible and not allowing for industry-specific considerations.

Question 19

Command-and-control legislation, as compared to incentive-based regulation:

Accepted Answer

Command-and-control legislation typically sets specific limits or standards for pollution emissions or other environmental factors, which can discourage firms from innovating or finding the most efficient ways to reduce pollution. This approach can limit the use of comparative advantage, as it may force all companies to meet the same standards regardless of their individual capabilities or efficiencies. Additionally, it can discourage the development of new technology because firms are focused on meeting specific regulatory requirements rather than exploring innovative solutions that could be more effective or efficient in the long run.

Question 20

A government policy that charges coal producers a fee per ton of coal produced (an "effluent charge"), where the fee is determined by the amount of pollutants discharged into the air or water, will lead to a(n):

Accepted Answer

An effluent charge on coal producers is a form of a negative production externality, where the costs of pollution are not captured in the market price of coal. When coal producers have to pay a fee for each ton of coal produced, which is determined by the amount of pollutants discharged into the environment, it increases their marginal cost of production. As a result, the supply curve for coal shifts to the left, leading to a decrease in the market equilibrium quantity of coal produced (option A is correct).

Moreover, the increase in the marginal cost of production also increases the market equilibrium price of coal (option C is correct) as the quantity demanded decreases along with the decrease in supply. Therefore, the correct answer is D.

Quiz 14: Environmental Economics

A pollution tax is:

Government regulations that set an environmental goal and dictate how the goal will be achieved are called:

Exhibit 14-1 Private and social cost -Use Exhibit 14-1 to answer the following question. To maximize social welfare, the firm should produce at the output rate:

Which of the following statements is true?

Incentive-based regulations:

In order to achieve social efficiency, the size of an effluent tax should be based on:

Markets for pollution rights:

Which of the following is the best example of a command-and-control regulation?

An example of the command-and-control approach to environmental policy is:

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Incentive-based regulatory approaches:

Which of the following is not a reason why marketable permits may fail to achieve efficiency?

Solar vehicles that operate on photovoltaic cells:

Command-and-control regulation, as compared to incentive-based regulation, is:

In order to increase society's total welfare (social efficiency) , a production process that produces a negative externality should be:

Exhibit 14-1 Private and social cost -The perfectly competitive profit-maximizing firm in Exhibit 14-1 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to:

An example of the command-and-control approach to environmental policy is:

When using the traditional command-and-control approach to environmental regulation, the government attempts to:

Command-and-control legislation, as compared to incentive-based regulation:

A government policy that charges coal producers a fee per ton of coal produced (an "effluent charge") , where the fee is determined by the amount of pollutants discharged into the air or water, will lead to a(n) :