Question 1

First Rate Corporation emits airborne pollutants in connection with the production of its product. If there is no government regulation, it is likely that the amount of pollutants emitted by the corporation will be:

Accepted Answer

In the absence of government regulation, First Rate Corporation has no incentive to limit the amount of pollutants it emits as there are no penalties or costs associated with emitting pollutants beyond the production costs. Therefore, the corporation is likely to emit more pollutants than the efficient amount, causing negative externalities and harming society.

Question 2

Pig Pen Industries is currently producing 5000 tons of paper per day. At this level of production, marginal social costs are $10 per ton while marginal social benefits are $12 per ton. We know that Pig Pen:

Accepted Answer

Pig Pen is producing at a level where marginal costs ($10) are less than marginal benefits ($12) indicating that they are not producing enough paper relative to what would be efficient for society. Therefore, the company is producing an amount less than the efficient amount. To increase net benefits for society, Pig Pen could increase its production.

Question 3

Which statement is true?

Accepted Answer

Some estimates show that GDP in 2010 in the United States could be as much as 5% lower as a result of the changes required to achieve the Kyoto target. Option A is incorrect because the Kyoto Protocol does not force less-developed countries to reduce emissions. Option B is incorrect because the financial burden of the Kyoto Protocol is a contentious issue, with developed countries like the United States arguing that it places an unfair burden on them. Option C is incorrect because an international agreement on emission permit trading could have a significant impact on the cost associated with the Kyoto Protocol.

Question 4

Use the following diagram to answer the following questions.
 
-Refer to Miles. Suppose individuals are currently traveling 2,000 miles. The marginal external cost is:

Accepted Answer

The answer of Use the following diagram to answer the...

Question 5

Suppose that at current production levels, Big Dog Inc. estimates its marginal cost to be $25, its marginal external cost to be $10, and its marginal social benefit to be $35. In this case, the corporation:

Accepted Answer

The efficient production level is where the marginal social cost equals the marginal social benefit. Here, the marginal social cost (sum of marginal cost and marginal external cost, $25 + $10 = $35) equals the marginal social benefit ($35), indicating that the corporation is producing the efficient amount.

Question 6

The costs of environmental regulation could be reduced without reducing environmental quality by:

Accepted Answer

Marketable emissions permits allow for a market-based approach to reducing pollution. It incentivizes companies to reduce their emissions and rewards those who do. It also allows for more flexibility in meeting emissions targets, as companies can buy and sell permits as needed. This can ultimately lead to lower costs for both companies and the government, without reducing environmental quality. Relying less on pollution taxes (B) is not an effective solution as it can lead to higher costs for companies, and there is no guarantee that reducing taxes would result in more environmentally friendly practices. Enacting stricter environmental regulations (C) can be effective, but it may come with higher costs, which could be avoided or minimized by using marketable emissions permits. Using technology forcing (D) may also be effective in reducing environmental costs, but it may not be as feasible or cost-effective as using market-based approaches.

Question 7

An emissions tax can bring about an efficient solution to the pollution problem because it:

Accepted Answer

An emissions tax makes both firms and households internalize the external costs of their decisions related to pollution, leading to more efficient outcomes in terms of pollution levels.

Question 8

Suppose that at current production levels, A Major Corporation's marginal cost is $15, its marginal external cost is $5, and the marginal social benefit of production is $25. In this case, the corporation:

Accepted Answer

The marginal social cost (MSC) is the sum of marginal cost (MC) and marginal external cost (MEC), which equals $20 ($15 + $5). Since the marginal social benefit (MSB) of production is $25, which is higher than the MSC of $20, the corporation is producing less than the efficient amount. Increasing production until MSB equals MSC would achieve efficiency.

Question 9

Which of the following have economists suggested as alternatives to regulating pollution?

Accepted Answer

Economists have suggested all of the above alternatives to regulate pollution. The assignment of property rights can incentivize individuals to take responsibility for their pollution, while an emissions tax can discourage pollution by making it more expensive. The creation of a market for pollution permits allows for the efficient allocation of pollution levels among firms.

Question 10

The Kyoto Protocol is an agreement designed to reduce international emissions of:

Accepted Answer

The Kyoto Protocol is an international agreement aimed at reducing global emissions of greenhouse gases, particularly carbon dioxide, which is a major contributor to climate change.

Question 11

Use the following diagram to answer the following questions.
 
-Refer to Miles. Suppose individuals are currently traveling at the efficient level of 1,500 miles. The level of pollution would be:

Accepted Answer

At the efficient level of travel, there is still some pollution produced, but it is at a level where the marginal social benefits equal the marginal social costs. Therefore, pollution would be greater than zero but managed in a way that balances benefits and costs.

Question 12

Which of the following is not an external cost attributed to the automobile?

Accepted Answer

The purchase price of gasoline is not considered an external cost attributed to the automobile as it is a direct cost incurred by the consumer and is internal to the automobile usage. The other options, i.e., air pollution, congestion, and noise, are external costs associated with automobile usage as they impact the environment and society beyond the automobile user.

Question 13

Use the following diagram to answer the following questions.
 
-Refer to Miles. In the absence of any government regulation individuals will travel:

Accepted Answer

In the absence of government regulation, individuals will travel the maximum distance available to them, assuming that the options provided represent the maximum distances possible. Therefore, 2,000 miles is the correct choice as it is the highest mileage option given.

Question 14

ZAPCO Refinery is currently producing 100,000 barrels of refined oil per day. The marginal cost of this production is $40 per barrel and the marginal external cost is $30 per barrel. Suppose the marginal social benefit is $65 per barrel. In this case, ZAPCO is:

Accepted Answer

ZAPCO's production imposes a marginal external cost of $30 per barrel, which is not accounted for in their private costs. The marginal social cost (sum of marginal cost and marginal external cost) is $70 ($40 + $30) per barrel, which is higher than the marginal social benefit of $65. This indicates that ZAPCO is producing too much from a social perspective, as the cost to society (including environmental harm) exceeds the benefit, suggesting they should cut back production to reach an efficient level.

Question 15

Higher energy prices:

Accepted Answer

Higher energy prices could lead to higher production costs for businesses, leading to a decrease in supply and a decrease in GDP. Additionally, consumers may have less disposable income due to higher energy costs, leading to a decrease in demand for goods and services, and ultimately leading to an increase in unemployment.

Question 16

Use the following diagram to answer the following questions.
 
-Refer to Miles. The efficient number of miles for individuals to travel is:

Accepted Answer

The answer of Use the following diagram to answer the...

Question 17

Suppose that in the process of production, Energy Incorporated emits large amounts of sulfur dioxide into the atmosphere. This is an example of:

Accepted Answer

The emission of sulfur dioxide is a marginal external cost because it is a cost that is not borne by Energy Incorporated or its consumers, but rather by society as a whole in the form of air pollution and its associated health and environmental impacts.

Question 18

A common property resource is a resource that:

Accepted Answer

A common property resource is considered to be the property of all individuals, meaning that it is accessible to multiple parties and not owned by a single entity. This includes resources like air, oceans, and wildlife, which cannot be easily confined to a single owner's property and are used collectively.

Question 19

Which of the following is not a way economists have suggested for imposing the external costs of driving on consumers?

Accepted Answer

Economists have suggested higher gasoline taxes, congestion pricing, and parking cash-outs as ways to impose the external costs of driving on consumers. However, uniform mileage limitations have not been suggested as a solution.

Question 20

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

Accepted Answer

The decrease in the catch of fish due to pollution from the factory is a negative externality imposed on the fishermen, who are not involved in the production of the factory. This is an example of a marginal external cost.

Option A is an example of a personal injury that occurred due to negligence on the part of a company but is not a marginal external cost. 
Option B describes an increase in a firm's production costs as a result of government regulations and not a marginal external cost. 
Option D is the cost of preventing pollution and is a private cost for the corporation, not a marginal external cost.

Quiz 6: Air Pollution: Balancing Benefits and Costs