Question 1

The major categories of market instruments are: pollution charges, deposit/refund systems, subsidies, and pollution permit trading systems.

Accepted Answer

This statement is true. The major categories of market instruments for environmental management are pollution charges, deposit/refund systems, subsidies, and pollution permit trading systems.

Question 2

If firms abate to the point where each firm's MAC equals the marginal tax, an efficient solution will result.

Accepted Answer

False

Question 3

A pollution charge follows the "polluter-pays principle."

Accepted Answer

A pollution charge is a fee imposed on individuals or companies that pollute the environment. This fee is based on the "polluter-pays principle," which means that those who are responsible for environmental damage should pay for the costs of remediation or mitigation. Therefore, the answer is true.

Question 4

To effectively internalize the externality, the deposit component of a deposit-refund system must raise the MPC of illegal waste disposal by the MEC measured at the competitive output level.

Accepted Answer

The answer of To effectively internalize the externality, the deposit...

Question 5

Suppose that for some abatement equipment market, the MSB = 525 - 1.2Q and MPB = 325 - 0.8Q, then the Pigouvian subsidy for that market must equal 200 - 0.4Q at Q_E to achieve an efficient outcome.

Accepted Answer

The Pigouvian subsidy is calculated as the difference between the Marginal Social Benefit (MSB) and the Marginal Private Benefit (MPB), which in this case is (525 - 1.2Q) - (325 - 0.8Q) = 200 - 0.4Q, aligning with the statement provided.

Question 6

Compared to an abatement equipment subsidy, a per-unit subsidy on abatement might be less disruptive to the market because it is defined without any influence as to how abatement is achieved.

Accepted Answer

A per-unit subsidy on abatement provides a financial incentive for companies to reduce emissions without dictating the specific technologies or methods they must use. This approach can be less disruptive to the market than an abatement equipment subsidy, which could favor certain technologies over others and create an uneven playing field.

Question 7

If Firm X is abating 9 units with an MACS1U1B1XS1U1B0 = 0.6AS1U1B1XS1U1B0 , and Firm Y is abating 11 units with an MACS1U1B1YS1U1B0  = 0.9AS1U1B1YS1U1B0 , then Firm Y should do less of the abating and Firm X should do more in order to lower the overall costs of abatement.

Accepted Answer

Firm Y has a higher MACS1U1B1 compared to Firm X, which means that it is more expensive for Firm Y to abate. Therefore, if Firm Y does less of the abating and Firm X does more, the overall costs of abatement will be lowered.

Question 8

If production of a good generates an environmental negative externality, the effect of that externality is captured by the MEC of production.

Accepted Answer

The MEC (Marginal External Cost) of production includes the negative external costs associated with the production of a good, including environmental impacts. As such, the effect of an environmental negative externality is included in the MEC of production.

Question 9

Because polluters ignore the MEC of environmental damage linked to the production of a good, too few resources are allocated to producing that good.

Accepted Answer

The statement is incorrect as polluters ignoring the MEC of environmental damage leads to too many resources being allocated to producing a good, resulting in overproduction and environmental harm.

Question 10

If firm 1 and firm 2 each face an marginal abatement cost of MAC₁ = 5A₁ and MAC₂ = 3A₂, respectively, and if the combined abatement level must be 16 units, then firm 1 must abate 6 units and firm 2 must abate 10 units in order to achieve the cost-effective solution.

Accepted Answer

To achieve the cost-effective solution, the firms must allocate abatement levels based on their marginal abatement costs until the combined abatement level reaches 16 units.

If we allocate the abatement level based on the ratio of marginal abatement costs, we get:

- Firm 1's share = (5/8) x 16 = 10 units
- Firm 2's share = (3/8) x 16 = 6 units

This allocation is not cost-effective, as Firm 1's marginal abatement cost is higher than Firm 2's, so it is more expensive for Firm 1 to abate compared to Firm 2.

Therefore, the cost-effective solution is for Firm 1 to abate 6 units (at a cost of 5 x 6 = 30) and for Firm 2 to abate 10 units (at a cost of 3 x 10 = 30), which results in a combined abatement cost of 60.

Question 11

Of all the market-based policy instruments used to combat environmental damage, the pollution charge is the most commonly used worldwide.

Accepted Answer

The statement is true. The pollution charge, also known as a pollution tax or a Pigouvian tax, is a market-based policy instrument used to internalize the external costs associated with pollution. It is the most commonly used policy instrument worldwide, as it provides an incentive for polluters to reduce emissions and invest in cleaner technologies.

Question 12

A Pigouvian tax is a charge on a good whose production generates a negative externality, such that the charge is equal to the MEC at the competitive output level.

Accepted Answer

The answer of A Pigouvian tax is a charge on...

Question 13

Suppose that Firm 1 and Firm 2 face marginal abatement costs of MAC₁ = 2.5A₁ and MAC₂ = 1.5A₂, respectively, and that tradeable permits for pollution are issued such that a total of 20 units must be abated. If firm 1 abates 7.5 units, and firm 2 abates 12.5 units, then both firms have an incentive to trade.

Accepted Answer

The answer of Suppose that Firm 1 and Firm 2...

Question 14

Major categories of market-based instruments include

Accepted Answer

All of the above are major categories of market-based instruments. Pollution charges involve a fee or tax on the amount of pollution emitted by a firm or individual. Subsidies can be used to encourage the adoption of cleaner technologies or practices. Deposit/refund systems involve requiring a deposit on products that produce waste and providing a refund when the product is returned for recycling or disposal. Pollution permit trading systems allow firms to buy and sell permits that allow them to emit a certain amount of pollution, creating a market for pollution permits.

Question 15

Suppose that for some abatement equipment market, the MSB = 502 - 1.2Q, and MPB = 302 - 0.8Q, then the Pigouvian subsidy must equal 804 - 2Q at the efficient output level to achieve the efficient output level.

Accepted Answer

The correct Pigouvian subsidy should be equal to the difference between the MSC and the MPB at the efficient output level, not the MSB. The MSC in this case is equal to MSB + Pigouvian subsidy, so the correct subsidy would be 804 - 2Q - (502 - 1.2Q) = 302 + 0.8Q. This means the correct answer is B, as the given Pigouvian subsidy is not equal to the efficient subsidy.

Question 16

In the single-polluter case, a firm faced with an emission charge for pollution implemented as a marginal tax (MT) will abate as long as MAC < MT.

Accepted Answer

If the Marginal Abatement Cost (MAC) is less than the Marginal Tax (MT) imposed by the government for each unit of pollution, then the firm will find it profitable to reduce pollution and abate. Therefore, the statement is true.

Question 17

A payment or tax concession aimed at lowering the cost of abating is called a pollution charge.

Accepted Answer

A pollution charge is a fee imposed on the quantity of pollutants released, not a concession or subsidy aimed at lowering abatement costs.

Question 18

In the multiple-polluter case, each firm faced with an emission charge implemented as a marginal tax (MT) abates up to the point where MAC equals MT, which results in a cost-effective solution.

Accepted Answer

When each firm faces an emission charge implemented as a marginal tax, it is true that each firm will abate up to the point where their marginal abatement cost (MAC) equals the marginal tax (MT). This results in a cost-effective solution for reducing emissions.

Question 19

According to the textbook application, the United States pays a higher tax rate on gasoline than any nation in the European Union (EU).

Accepted Answer

The United States does not pay a higher tax rate on gasoline than any nation in the European Union (EU). In fact, according to the textbook application, the United States has one of the lowest tax rates on gasoline among OECD countries, while many EU countries have much higher tax rates on gasoline.

Question 20

In a deposit-refund system, the deposit makes the polluter internalize the externality by absorbing the cost of any damage it might generate in advance.

Accepted Answer

In a deposit-refund system, a deposit is paid in advance by the polluter and refunded when they properly dispose of the waste. This deposit serves as an incentive for the polluter to dispose of the waste properly and internalizes the cost of any potential damage caused by improper disposal, making the polluter accountable for their actions. Therefore, this statement is true.

Quiz 5: Economic Solutions to Environmental Problems: the Market Approach

The major categories of market instruments are: pollution charges, deposit/refund systems, subsidies, and pollution permit trading systems.

If firms abate to the point where each firm's MAC equals the marginal tax, an efficient solution will result.

A pollution charge follows the "polluter-pays principle."

To effectively internalize the externality, the deposit component of a deposit-refund system must raise the MPC of illegal waste disposal by the MEC measured at the competitive output level.

Suppose that for some abatement equipment market, the MSB = 525 - 1.2Q and MPB = 325 - 0.8Q, then the Pigouvian subsidy for that market must equal 200 - 0.4Q at Q_E to achieve an efficient outcome.

Compared to an abatement equipment subsidy, a per-unit subsidy on abatement might be less disruptive to the market because it is defined without any influence as to how abatement is achieved.

If Firm X is abating 9 units with an MAC_X = 0.6A_X , and Firm Y is abating 11 units with an MAC_Y = 0.9A_Y , then Firm Y should do less of the abating and Firm X should do more in order to lower the overall costs of abatement.

If production of a good generates an environmental negative externality, the effect of that externality is captured by the MEC of production.

Because polluters ignore the MEC of environmental damage linked to the production of a good, too few resources are allocated to producing that good.

If firm 1 and firm 2 each face an marginal abatement cost of MAC₁ = 5A₁ and MAC₂ = 3A₂, respectively, and if the combined abatement level must be 16 units, then firm 1 must abate 6 units and firm 2 must abate 10 units in order to achieve the cost-effective solution.

Of all the market-based policy instruments used to combat environmental damage, the pollution charge is the most commonly used worldwide.

A Pigouvian tax is a charge on a good whose production generates a negative externality, such that the charge is equal to the MEC at the competitive output level.

Major categories of market-based instruments include

Suppose that for some abatement equipment market, the MSB = 502 - 1.2Q, and MPB = 302 - 0.8Q, then the Pigouvian subsidy must equal 804 - 2Q at the efficient output level to achieve the efficient output level.

In the single-polluter case, a firm faced with an emission charge for pollution implemented as a marginal tax (MT) will abate as long as MAC < MT.

A payment or tax concession aimed at lowering the cost of abating is called a pollution charge.

In the multiple-polluter case, each firm faced with an emission charge implemented as a marginal tax (MT) abates up to the point where MAC equals MT, which results in a cost-effective solution.

According to the textbook application, the United States pays a higher tax rate on gasoline than any nation in the European Union (EU).

In a deposit-refund system, the deposit makes the polluter internalize the externality by absorbing the cost of any damage it might generate in advance.

Quiz 5: Economic Solutions to Environmental Problems: the Market Approach

The major categories of market instruments are: pollution charges, deposit/refund systems, subsidies, and pollution permit trading systems.

If firms abate to the point where each firm's MAC equals the marginal tax, an efficient solution will result.

A pollution charge follows the "polluter-pays principle."

To effectively internalize the externality, the deposit component of a deposit-refund system must raise the MPC of illegal waste disposal by the MEC measured at the competitive output level.

Suppose that for some abatement equipment market, the MSB = 525 - 1.2Q and MPB = 325 - 0.8Q, then the Pigouvian subsidy for that market must equal 200 - 0.4Q at QE to achieve an efficient outcome.

Compared to an abatement equipment subsidy, a per-unit subsidy on abatement might be less disruptive to the market because it is defined without any influence as to how abatement is achieved.

If Firm X is abating 9 units with an MACX = 0.6AX , and Firm Y is abating 11 units with an MACY = 0.9AY , then Firm Y should do less of the abating and Firm X should do more in order to lower the overall costs of abatement.

If production of a good generates an environmental negative externality, the effect of that externality is captured by the MEC of production.

Because polluters ignore the MEC of environmental damage linked to the production of a good, too few resources are allocated to producing that good.

If firm 1 and firm 2 each face an marginal abatement cost of MAC1 = 5A1 and MAC2 = 3A2, respectively, and if the combined abatement level must be 16 units, then firm 1 must abate 6 units and firm 2 must abate 10 units in order to achieve the cost-effective solution.

Of all the market-based policy instruments used to combat environmental damage, the pollution charge is the most commonly used worldwide.

A Pigouvian tax is a charge on a good whose production generates a negative externality, such that the charge is equal to the MEC at the competitive output level.

Major categories of market-based instruments include

Suppose that for some abatement equipment market, the MSB = 502 - 1.2Q, and MPB = 302 - 0.8Q, then the Pigouvian subsidy must equal 804 - 2Q at the efficient output level to achieve the efficient output level.

In the single-polluter case, a firm faced with an emission charge for pollution implemented as a marginal tax (MT) will abate as long as MAC < MT.

A payment or tax concession aimed at lowering the cost of abating is called a pollution charge.

In the multiple-polluter case, each firm faced with an emission charge implemented as a marginal tax (MT) abates up to the point where MAC equals MT, which results in a cost-effective solution.

According to the textbook application, the United States pays a higher tax rate on gasoline than any nation in the European Union (EU).

In a deposit-refund system, the deposit makes the polluter internalize the externality by absorbing the cost of any damage it might generate in advance.

Suppose that for some abatement equipment market, the MSB = 525 - 1.2Q and MPB = 325 - 0.8Q, then the Pigouvian subsidy for that market must equal 200 - 0.4Q at Q_E to achieve an efficient outcome.

If Firm X is abating 9 units with an MAC_X = 0.6A_X , and Firm Y is abating 11 units with an MAC_Y = 0.9A_Y , then Firm Y should do less of the abating and Firm X should do more in order to lower the overall costs of abatement.

If firm 1 and firm 2 each face an marginal abatement cost of MAC₁ = 5A₁ and MAC₂ = 3A₂, respectively, and if the combined abatement level must be 16 units, then firm 1 must abate 6 units and firm 2 must abate 10 units in order to achieve the cost-effective solution.