Question 1

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

Accepted Answer

Firms that can reduce pollution at a low cost will find it easier and cheaper to purchase pollution permits rather than investing in expensive pollution control equipment. Therefore, they will be willing to sell their permits if they have excess or if the market price is high enough.

Question 2

A tax on the likelihood of being in a collision will help internalize the external costs of collisions.

Accepted Answer

A tax on the likelihood of being in a collision, such as a higher insurance premium for high-risk drivers, would encourage safer driving behavior and encourage individuals to take responsibility for the external costs of their actions (in this case, the costs associated with collisions). By internalizing these costs, individuals would be incentivized to drive more safely and take precautions to avoid collisions, ultimately reducing the overall number and severity of collisions on the road.

Question 3

The automobile is the biggest source of smog-causing pollutants.

Accepted Answer

According to the United States Environmental Protection Agency (EPA), the automobile is the biggest source of smog-causing pollutants. This is due to the emissions from the tailpipes of cars, trucks, and other vehicles, which produce nitrogen oxides and volatile organic compounds that contribute to the formation of smog.

Question 4

Recall the Application about how the price of pollution permits is determined to answer the following question(s).
-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 Application describes how the demand for CO₂ allowances in the European Union cap-and-trade system is affected by factors such as economic activity, fuel prices, and weather. Therefore, the statement that "the demand of allowances is determined by different factors" is true.

Question 5

The primary source of smog-causing pollutants is

Accepted Answer

While all of these sources contribute to air pollution, automobiles are the primary source of smog-causing pollutants. This is particularly true in urban areas where there are high concentrations of cars on the road. Power plants and airplanes also contribute to air pollution, but to a lesser extent. Charcoal grills can emit pollutants, but are not a significant contributor to smog.

Question 6

To internalize the external costs from traffic congestion,policymakers could

Accepted Answer

Establishing a congestion tax is the best choice to internalize external costs from traffic congestion, as it would directly target the use of cars during peak traffic hours and incentivize people to use alternative modes of transportation or carpool. Reducing the number of drivers' licenses and requiring smaller cars to be sold may not be effective solutions, as people may still opt to use their cars during peak hours or choose to purchase larger cars in other regions without these regulations. Building fewer highways may also not solve the issue of traffic congestion, especially in urban areas with limited space for alternative transportation options.

Question 7

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

Accepted Answer

A pollution tax on automobiles would increase the cost of driving, making alternative transportation options such as public transit or biking more attractive to consumers. This would likely lead to a decrease in the use of automobiles and therefore potentially less maintenance of emissions equipment. However, it would not necessarily result in more miles being driven as it depends on how individuals choose to respond to the tax.

Question 8

About one-third of the annual costs from automobile collisions are borne by the driver who causes the collision.

Accepted Answer

The costs from automobile collisions are not solely borne by the driver who causes the collision. Costs are distributed among insurance companies, government entities, and other drivers through increased insurance premiums, taxes for emergency response and road repairs, and personal expenses for uninsured losses. The specific distribution of costs varies widely depending on the circumstances of each collision, insurance coverage, and local laws.

Question 9

How is the price of a marketable pollution permit determined?

Accepted Answer

The answer of How is the price of a marketable...

Question 10

Explain how a pollution tax on automobiles would work toward effectively internalizing an external cost.

Accepted Answer

The answer of Explain how a pollution tax on automobiles...

Question 11

The annual cost of collisions in the United States 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 statement, the annual cost of collisions in the United States is $300 billion. It also mentions that the driver who causes the accident incurs only a portion of these costs, leaving the rest as an external cost imposed on others. Therefore, the driver who causes the accident is responsible for approximately one-third of the costs ($300 billion/3 = $100 billion), leaving the remaining two-thirds ($200 billion) as external costs imposed on others. Hence, the correct answer is C) two-thirds.

Question 12

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 pollution at a high cost, it may find it more cost-effective to purchase pollution permits instead of implementing costly pollution control measures. In this case, the firm would have a high willingness to pay for pollution permits, as it allows them to continue operating while also meeting pollution regulations.

Question 13

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

Accepted Answer

All options listed are external costs generated by the use of automobiles. The time cost of congested highways is a form of negative externalities imposed on travelers, while motor-vehicle accidents and air pollutants are negative externalities imposed on society.

Question 14

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, known as the Acid Rain Program, for sulfur dioxide (SO₂) emissions in an effort to reduce acid rain.

Question 15

Recall the Application about the external cost of young drivers to answer the following question(s).
-Recall the Application.Based on external cost,which of the following groups would pay the highest tax?

Accepted Answer

Young drivers, those under 25 years old, are more likely to be involved in accidents and therefore incur higher external costs. As a result, they would be expected to pay a higher tax to account for these costs. Drivers over 25 but younger than 70 would likely have lower external costs while drivers over 70 may have higher costs due to advanced age-related issues, however, the question only asks for a comparison between these three groups, and not drivers in general. Therefore, the correct choice is C, drivers under 25 years old.

Question 16

Recall the Application about the external cost of young drivers to answer the following question(s).
-Recall the Application.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, which refer to the costs associated with accidents caused by young and inexperienced drivers. By paying a tax for each mile they drive, young drivers would be forced to take into account the negative impact of their driving behavior on others, and would thus be incentivized to drive more safely and responsibly. This would ultimately reduce the number of accidents caused by young drivers and lower the overall external cost associated with their driving behavior.

Question 17

The primary source of smog-causing pollutants is paper mills.

Accepted Answer

While paper mills can contribute to air pollution, the primary sources of smog-causing pollutants are transportation (especially cars and trucks), industry, and power generation from fossil fuels.

Question 18

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

Accepted Answer

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

Question 19

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 20

How is a system of marketable pollution permits set up?

Accepted Answer

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

Quiz 16: External Costs and Environmental Policy