Question 1

Consider a coal-fired electric-power plant that is operating under a cap-and trade-system.If its marginal cost of pollution abatement is $5 per unit and the price of the permit is $3 per unit,this firm will

Accepted Answer

At $5 per unit, the marginal cost of pollution abatement is higher than the cost of buying permits at $3 per unit. This means that the firm would choose to buy permits rather than abate pollution on their own. However, in order to comply with the cap, they must abate some pollution. Therefore, they would buy permits and abate less pollution than they would have without the cap-and-trade system. Choice D is the best choice because it reflects this decision.

Question 2

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating QS1U1B10S1U1B0 units of pollution.  FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.The effect will be that

Accepted Answer

When a system of tradable pollution permits is introduced, firms can buy or sell permits according to their marginal cost of abatement. At the equilibrium permit price p*, both firms can abate pollution up to their marginal cost of abatement equal to p*. In this case, Firm B has a lower marginal cost of abatement than Firm A for all levels of pollution, so it will sell some of its permits to Firm A. As a result, Firm B will reduce its abatement to the level where its marginal cost of abatement is equal to p*. Firm A will increase its abatement to the level where its marginal cost of abatement is equal to p*. Therefore, Firm B will abate less pollution ( Q₂ ), and Firm A will abate more pollution ( Q₁ ). Hence, the correct answer is C.

Question 3

A paper mill discharges chemicals into a river which affect the shores of a downstream resort area.The private cost,social cost,and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q,SMC = 10 + 2Q,and MB = 35 - 0.5Q.What level of emissions tax (dollars per unit of output produced)would provide the paper mill with the incentive to produce at the allocatively efficient level of output?

Accepted Answer

The allocatively efficient level of output occurs where the social marginal cost (SMC) equals the marginal benefit (MB). Setting SMC = MB gives 10 + 2Q = 35 - 0.5Q. Solving for Q gives Q = 10. The private marginal cost (PMC) at this level is 5 + 10 = 15. The emissions tax should equal the difference between SMC and PMC at the efficient output level, which is 15 - 5 = $10. Therefore, the tax should be $10 per unit.

Question 4

The diagram below shows a market for tradable pollution permits.  FIGURE 17-8
-Refer to Figure 17-8,which depicts the market for tradable pollution permits.If the environmental organization called "Friends of the Earth" buys a large quantity of pollution permits and permanently decides not to use them,then

Accepted Answer

When "Friends of the Earth" buys and does not use the permits, the effective supply of permits decreases, shifting the supply curve to the left and increasing the equilibrium price.

Question 5

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating QS1U1B10S1U1B0 units of pollution.  FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is  .Firm A will sell permits to Firm B because

Accepted Answer

The answer of The diagram below shows the marginal cost...

Question 6

As a method of pollution control,tradable emissions permits,or "cap and trade,"

Accepted Answer

Tradable emissions permits, or "cap and trade," have the advantage of decentralized decision making like emissions taxes, while also setting the maximum permissible level of pollution like direct controls. This method allows firms to trade permits and choose their own level of pollution reduction, creating a market-based incentive for reducing pollution. It can be more effective than emissions taxes when pollution is hard to measure, such as with greenhouse gas emissions. Therefore, choice D best describes the effects of the cap and trade system.

Question 7

The diagram below shows a market for tradable pollution permits.  FIGURE 17-8
-Refer to Figure 17-8,which depicts the market for tradable pollution permits.If there is an increase in firms' marginal cost of pollution abatement,

Accepted Answer

An increase in the marginal cost of pollution abatement makes it more expensive for firms to reduce pollution, leading them to demand more pollution permits instead of abating pollution.

Question 8

If emissions permits are traded freely between profit-maximizing firms in the private market,

Accepted Answer

When emissions permits are traded freely, firms will trade until the marginal cost of abatement is equalized across all firms, as this minimizes the total cost of achieving a given level of pollution reduction.

Question 9

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating QS1U1B10S1U1B0 units of pollution.  FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.Firm B will buy permits from Firm A because

Accepted Answer

Firm B will buy permits from Firm A because its total savings from abating less (areas 1 + 2 + 3) exceed the cost of buying the permits (areas 2 + 3), making it economically beneficial for Firm B to purchase permits rather than abate pollution.

Question 10

The diagram below shows a market for tradable pollution permits.  FIGURE 17-8
-Refer to Figure 17-8,which depicts a market for tradable pollution permits.Improvements in firms' abatement technology will be expected to

Accepted Answer

Improvements in firms' abatement technology reduce the cost of reducing pollution, leading to a decreased demand for pollution permits, thus shifting the demand curve to the left.

Question 11

Economists often argue that a system of tradable pollution permits is cost-effective because

Accepted Answer

The system of tradable pollution permits sets a price for permits and allows firms to choose their level of abatement as long as their marginal cost of abatement equals or is lower than the price of a permit. Firms with a lower marginal cost of abatement will choose to abate, while firms with a higher marginal cost of abatement will choose to buy permits and abate less. This leads to the most efficient allocation of abatement efforts, where the firms with the lowest marginal cost of abatement will undertake the most abatement, while the firms with the highest marginal cost of abatement will undertake the least amount of abatement. This leads to a cost-effective reduction of pollution overall. Therefore, Choice E is the best choice.

Question 12

Given that different firms typically have different costs of pollution reduction,

Accepted Answer

Tradable pollution permits allow firms with lower costs of pollution abatement to reduce their emissions, while firms with higher costs can purchase permits from those with lower costs, resulting in overall cost savings. This system creates an incentive for firms to reduce pollution efficiently, leading to a reduction in total pollution at a lower cost.

Question 13

The diagram below shows a market for tradable pollution permits.  FIGURE 17-8
-Refer to Figure 17-8,which depicts the market for tradable pollution permits.The amount of permits Q* is determined by

Accepted Answer

The amount of tradable pollution permits, Q*, is typically determined by the relevant government, which sets the cap on total emissions allowed and issues permits accordingly.

Question 14

Suppose a firm producing roof shingles imposes a negative externality on the surrounding area due to the noxious fumes emitted from the plant.The private marginal cost,social marginal cost and marginal benefit associated with the production of the shingles are given by the following equations:  = 5 + 2Q  = 10 + 3Q MB = 50 - Q
What level of emissions tax (dollars per unit of output produced)would provide this firm with the incentive to produce at the allocatively efficient level of output?

Accepted Answer

The answer of Suppose a firm producing roof shingles imposes...

Question 15

One possible strategy for efficiently addressing the market failure that leads to environmental pollution is

Accepted Answer

Tradable pollution permits would allow the government to set a limit on the amount of pollution that can be produced but still allows companies to trade permits among themselves. Companies that can reduce their pollution at a lower cost than the limit will sell their permits to those which have costs higher than the limit. This system incentivizes companies to produce clean energy or to use pollution reduction technologies in order to save money on permits, while companies that can't afford to comply with the limit can buy permits. Tradable pollution permits promote efficiency and flexibility, and ultimately reduce pollution at a lower cost than traditional direct controls.

Question 16

In a competitive market for tradable pollution permits,the quantity of permits (for a given amount of pollution)is set by ________ and the equilibrium price is determined by ________.

Accepted Answer

The government sets the quantity of pollution permits, while the market forces of supply and demand determine the equilibrium price.

Question 17

Suppose a competitive market for tradable pollution permits is in equilibrium at  ,with the quantity of permits being set by government policy at  .If technological advances reduce the marginal cost of pollution abatement,then

Accepted Answer

If technological advances reduce the marginal cost of pollution abatement, it becomes cheaper for firms to reduce their pollution levels. This means that they would require fewer permits to cover their emissions. As a result, the demand for permits will decrease, causing the equilibrium price to fall below its initial level of 11ea71cb_f3b2_c3d0_91e5_7da4cbbb7c3f_TB5441_11. Therefore, option A is the correct choice.

Question 18

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating QS1U1B10S1U1B0 units of pollution.  FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.The effect will be that

Accepted Answer

The answer of The diagram below shows the marginal cost...

Question 19

Consider a coal-fired electric-power plant that is operating under a system of tradable pollution permits (and the firm currently owns permits).If its marginal cost of pollution abatement is $100 per unit and the price of the permit is $150 per unit,this firm will

Accepted Answer

Since the marginal cost of abatement ($100) is less than the price of the permit ($150), the firm will find it cheaper to abate pollution and sell its permits for a profit.

Question 20

The diagram below shows a market for tradable pollution permits.  FIGURE 17-8
-Refer to Figure 17-8,which depicts the market for tradable pollution permits.The equilibrium price p*

Accepted Answer

The equilibrium price p* is determined at the intersection of the marginal abatement cost curve and the demand curve for pollution permits. At this price, each profit-maximizing firm will purchase pollution permits up until the point where the marginal benefit of the permits equals the marginal cost of abatement (i.e. the marginal abatement cost). Therefore, choice B is the correct answer. Choices A, C, D, and E are incorrect because they do not accurately describe the determination of the equilibrium price in a market for pollution permits.

Quiz 17: The Economics of Environmental Protection

Consider a coal-fired electric-power plant that is operating under a cap-and trade-system.If its marginal cost of pollution abatement is $5 per unit and the price of the permit is $3 per unit,this firm will

As a method of pollution control,tradable emissions permits,or "cap and trade,"

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.If there is an increase in firms' marginal cost of pollution abatement,

If emissions permits are traded freely between profit-maximizing firms in the private market,

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts a market for tradable pollution permits.Improvements in firms' abatement technology will be expected to

Economists often argue that a system of tradable pollution permits is cost-effective because

Given that different firms typically have different costs of pollution reduction,

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.The amount of permits Q* is determined by

One possible strategy for efficiently addressing the market failure that leads to environmental pollution is

In a competitive market for tradable pollution permits,the quantity of permits (for a given amount of pollution) is set by and the equilibrium price is determined by .

Suppose a competitive market for tradable pollution permits is in equilibrium at ,with the quantity of permits being set by government policy at .If technological advances reduce the marginal cost of pollution abatement,then

Consider a coal-fired electric-power plant that is operating under a system of tradable pollution permits (and the firm currently owns permits) .If its marginal cost of pollution abatement is $100 per unit and the price of the permit is $150 per unit,this firm will

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.The equilibrium price p*

Quiz 17: The Economics of Environmental Protection

Consider a coal-fired electric-power plant that is operating under a cap-and trade-system.If its marginal cost of pollution abatement is $5 per unit and the price of the permit is $3 per unit,this firm will

As a method of pollution control,tradable emissions permits,or "cap and trade,"

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.If there is an increase in firms' marginal cost of pollution abatement,

If emissions permits are traded freely between profit-maximizing firms in the private market,

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts a market for tradable pollution permits.Improvements in firms' abatement technology will be expected to

Economists often argue that a system of tradable pollution permits is cost-effective because

Given that different firms typically have different costs of pollution reduction,

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.The amount of permits Q* is determined by

One possible strategy for efficiently addressing the market failure that leads to environmental pollution is

In a competitive market for tradable pollution permits,the quantity of permits (for a given amount of pollution) is set by ________ and the equilibrium price is determined by ________.

Suppose a competitive market for tradable pollution permits is in equilibrium at ,with the quantity of permits being set by government policy at .If technological advances reduce the marginal cost of pollution abatement,then

Consider a coal-fired electric-power plant that is operating under a system of tradable pollution permits (and the firm currently owns permits) .If its marginal cost of pollution abatement is $100 per unit and the price of the permit is $150 per unit,this firm will

The diagram below shows a market for tradable pollution permits. FIGURE 17-8 -Refer to Figure 17-8,which depicts the market for tradable pollution permits.The equilibrium price p*

In a competitive market for tradable pollution permits,the quantity of permits (for a given amount of pollution) is set by and the equilibrium price is determined by .