Question 1

Tradable pollution permits are a:
A)tax system for internalizing pollution costs to the market.
B)subsidy system for charging consumers for the use of common property resources.
C)system of voluntary negotiations between polluters and damaged parties.
D)system of exchangeable licenses that enable the holder to pollute up to a specified amount during a given period.

Accepted Answer

Tradable pollution permits are simply licenses that allow the holder to pollute up to a specified amount during a given period. They create a market for pollution, where permits can be bought and sold, allowing companies to choose the most cost-effective way to reduce their pollution. This system incentivizes companies to reduce their emissions below their allotted level and sell the excess permits to other companies who may not have the resources to reduce their emissions to the same extent. This system creates a cap on total emissions and incentivizes companies to reduce their emissions in a cost-effective and efficient way.

Question 2

(Figure: The Optimal Quantity of Pollution)Use Figure: The Optimal Quantity of Pollution.The figure shows the marginal social cost (MSC)and marginal social benefit (MSB)for firms that pollute the air with sulfur dioxide.Using the figure,the optimal Pigouvian tax per unit of pollution is: Figure: The Optimal Quantity of Pollution 
A)$500.
B)$250.
C)$167.
D)$83.

Accepted Answer

The optimal Pigouvian tax per unit of pollution is equal to the difference between the MSC and MSB at the socially optimal level of pollution. From the graph, the socially optimal level of pollution occurs where MSB intersects with MSC, which is at a pollution level of 400 units. At this level of pollution, MSC is $500 and MSB is $667. Therefore, the optimal Pigouvian tax per unit of pollution is $167 ($667 - $500).

Question 3

Pigouvian taxes are designed to reduce:
A)the marginal cost of production.
B)the marginal benefit of consumption.
C)external costs.
D)external benefits.

Accepted Answer

Pigouvian taxes are designed to reduce external costs, which are costs imposed on third parties who are not involved in the market transaction. By taxing these external costs, the government seeks to internalize them, so that the parties involved in the market transaction are forced to bear the true cost of their actions. This can lead to more socially efficient outcomes, as it reduces the amount of negative externalities in the market.

Question 4

Licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:
A)emissions taxes.
B)environmental standards.
C)tradable emissions permits.
D)Pigouvian taxes.

Accepted Answer

Tradable emissions permits, also known as cap-and-trade programs, allow companies to buy and sell pollution permits. This system creates a market for pollution, setting a limit on the total amount of pollution that can be emitted, and allowing those who can reduce emissions more easily to sell their excess permits to those who struggle to do so. This incentivizes polluters to reduce their emissions and rewards companies who can reduce their emissions efficiently.

Question 5

If an emissions tax is too low:
A)there will be too little pollution.
B)there will be too much pollution.
C)the marginal social cost of pollution will be less than the marginal social benefit of pollution.
D)there could be either too much or too little pollution.

Accepted Answer

If an emissions tax is set too low, it does not provide enough of a financial disincentive for polluters to reduce their emissions, leading to too much pollution.

Question 6

(Figure: Environmental Standards versus Emissions Taxes)Use Figure: Environmental Standards versus Emissions Taxes.In the figure,if the goal is to limit the total emissions of the two firms,A and B,to 600 tons,the MOST efficient solution is an _____,and total pollution would be _____ tons. Figure: Environmental Standards versus Emissions Taxes 
A)environmental standard;300
B)emissions tax;600
C)environmental standard;600
D)emissions tax;200

Accepted Answer

The answer of (Figure: Environmental Standards versus Emissions Taxes)Use Figure:...

Question 7

If government officials set an emissions tax too high:
A)there will be too little pollution.
B)there will be too much pollution.
C)the marginal social cost of pollution will exceed the marginal social benefit of pollution.
D)pollution will be unabated.

Accepted Answer

If the emissions tax is set too high, it will discourage firms from polluting, potentially leading to a situation where there is less pollution than the socially optimal level, resulting in too little pollution.

Question 8

Use the following to answer question:
Figure: Three Firms That Pollute 
-(Figure: Three Firms that Pollute)Use Figure: Three Firms That Pollute.In the figure,at what tax rate would firm C produce positive amount of pollution?
A)$400
B)$500
C)$700
D)$200

Accepted Answer

The answer of Use the following to answer question:
Figure: Three...

Question 9

Use the following to answer question:
Figure: Three Firms That Pollute 
-(Figure: Three Firms that Pollute)Use Figure: Three Firms That Pollute.If each company is allowed to emit only 300 tons of pollution per day,which company will be MOST adversely affected?
A)firm A
B)firm B
C)firm C
D)They are equally affected.

Accepted Answer

Firm A will be most adversely affected because it has the highest cost of reducing pollution, as indicated by its steepest marginal abatement cost curve. This means it would incur the highest cost to reduce emissions to the 300 tons per day limit.

Question 10

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $500,but government officials have set the tax at $900.At the equilibrium with the $900 tax:
A)there will be too much pollution.
B)the marginal social cost of pollution will be less than $900.
C)the marginal social benefit of pollution will be $900.
D)the marginal social benefit of pollution will be more than $900.

Accepted Answer

The answer of Suppose that government officials have set an...

Question 11

Suppose that government officials have set an emissions tax to reduce pollution.Further suppose that,with the emissions tax,the marginal social cost of pollution exceeds the marginal social benefit of pollution.The emissions tax is:
A)too low.
B)too high.
C)optimal.
D)efficient.

Accepted Answer

When the marginal social cost of pollution exceeds the marginal social benefit, it indicates that the emissions tax is too low to fully internalize the external costs of pollution.

Question 12

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $1,500,but government officials have set the tax at $500.At the equilibrium with the $500 tax:
A)there will be too much pollution.
B)the marginal social cost of pollution will be less than $500.
C)the marginal social benefit of pollution will be less than $500.
D)the marginal social benefit of pollution will be more than $500.

Accepted Answer

At the equilibrium with the $500 tax, there will be too much pollution because the tax is set lower than the optimal tax of $1,500. This means that polluters will only internalize $500 of the cost of pollution, leading them to underinvest in abatement efforts and resulting in an inefficiently high level of pollution.

Question 13

The government has adopted an emissions tax if it:
A)transfers the ownership of city air to a private firm that charges automobile drivers a profit-maximizing price,based in part on the pollution capacity of the atmosphere.
B)charges automobile drivers $0.10 for each unit of automobile emissions.
C)pays automobile drivers $0.10 for each 10% reduction in automobile emissions.
D)specifies the type of catalytic converter that must be used to reduce automobile emissions.

Accepted Answer

Choice B is the only option that directly imposes a tax on automobile emissions, which serves as an incentive for drivers to reduce their emissions. Option A involves privatizing city air, which could have unintended consequences and may not effectively reduce emissions. Option C involves paying drivers for reducing emissions, which may not be financially feasible for the government and may not provide a strong enough incentive for drivers to change their behavior. Option D involves mandating a specific technology, which may not be the most cost-effective solution and could stifle innovation.

Question 14

Taxes are a more effective method of controlling pollution than are environmental standards because:
A)standards allow greater flexibility.
B)standards require less information.
C)standards never require the efficient level of output.
D)taxes encourage reducing pollution at the lowest possible cost.

Accepted Answer

Taxes create a financial incentive for firms to reduce pollution at the least cost-effective level, whereas environmental standards create a set of rules that can restrict output even beyond the most cost-effective level. This makes taxes a more effective method to control pollution than environmental standards.

Question 15

Which statement is CORRECT?
A)An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources.
B)An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources.
C)If an emissions tax and environmental standards lead to the same total reduction in pollution,then they will also lead to the same reduction in pollution by individual polluters.
D)It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known.

Accepted Answer

An emissions tax equalizes the marginal benefit of pollution from all sources, which means it creates a level playing field for all polluters and encourages them to reduce emissions in the most efficient way possible. On the other hand, an environmental standard may not be as efficient because it does not take into account the different marginal benefits of pollution from different sources.

Question 16

For the same amount of pollution emitted,an emissions tax is said to be more efficient than is an environmental standard because all polluters:
A)emit pollution up to the point at which the marginal benefit of polluting is equal to the emissions tax.
B)emit the same amount of pollution,regardless of the marginal benefit of polluting.
C)pay the same total tax bill for their pollution.
D)reduce pollution emissions to zero.

Accepted Answer

An emissions tax creates an incentive for polluters to reduce emissions up to the point where the cost of reducing the emissions is equal to the tax. This means that they will only emit pollution up to the point where it is economically efficient to do so, leading to the reduction of overall pollution output. Environmental standards, on the other hand, do not provide an economic incentive for reducing emissions and may lead to inefficient levels of pollution. Therefore, an emissions tax is more efficient.

Question 17

Which example illustrates an environmental policy that uses tradable pollution permits?
A)a charge of $0.10 to automobile drivers for a given level of emitted emissions
B)paying automobile drivers $0.10 for each 10% reduction in automobile emissions
C)allowing automobile drivers to buy and sell the right to emit a certain level of automobile emissions
D)ignoring pollution and letting private markets operate without government interference

Accepted Answer

Tradable pollution permits allow industries or individuals to buy and sell the right to emit a certain level of pollution. Therefore, option C is the only example that illustrates a policy that uses tradable pollution permits. Options A and B involve government charges and incentives, respectively, but do not involve trading permits. Option D suggests a lack of government intervention, which does not relate to policy measures that use tradable pollution permits.

Question 18

Use the following to answer question:
Figure: Three Firms That Pollute 
-(Figure: Three Firms that Pollute)Use Figure: Three Firms That Pollute.If the city imposes a tax of $400 per ton of pollution,firm B will produce _____ tons of mercury,and firm A will produce _____ tons of mercury than will firm C.
A)600;200 fewer
B)700;200 fewer
C)300;500 more
D)300;200 fewer

Accepted Answer

The answer of Use the following to answer question:
Figure: Three...

Question 19

Suppose the federal government determines the total level of municipal sewage that can be discharged by cities along a river.If the cities are able to buy and sell rights to the total discharge level among themselves,then the government's environmental policy includes:
A)emissions taxes.
B)Pigouvian subsidies.
C)tradable pollution permits.
D)command and control.

Accepted Answer

The scenario described refers to the use of tradable pollution permits as a policy tool. This mechanism allows the government to set a limit on the total amount of pollution that can be generated by a group of polluters, and then to allocate permits to individual firms, giving them the right to emit up to a certain amount. Firms that are able to reduce their pollution levels more than required can sell their permits to others who find it harder to cut emissions. This creates an incentive for firms to find and implement cost-effective ways to reduce pollution levels.

Question 20

Suppose an emissions tax is imposed on all dairy farms in Wisconsin.This tax would:
A)encourage the dairy farmers to lower prices.
B)increase the level of emissions.
C)reduce the supply of milk in Wisconsin.
D)increase the supply of milk in Wisconsin.

Accepted Answer

An emissions tax would increase the cost of production for dairy farmers, leading to a decrease in the supply of milk in Wisconsin as some farmers may go out of business or reduce their production. This would result in higher prices for consumers due to the reduced supply. It would also incentivize farmers to reduce their emissions in order to avoid the tax, which would have a positive impact on the environment.

Quiz 16: Externalities

Tradable pollution permits are a:

Pigouvian taxes are designed to reduce:

Licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:

If an emissions tax is too low:

If government officials set an emissions tax too high:

Use the following to answer question: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) Use Figure: Three Firms That Pollute.In the figure,at what tax rate would firm C produce positive amount of pollution?

Use the following to answer question: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) Use Figure: Three Firms That Pollute.If each company is allowed to emit only 300 tons of pollution per day,which company will be MOST adversely affected?

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $500,but government officials have set the tax at $900.At the equilibrium with the $900 tax:

Suppose that government officials have set an emissions tax to reduce pollution.Further suppose that,with the emissions tax,the marginal social cost of pollution exceeds the marginal social benefit of pollution.The emissions tax is:

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $1,500,but government officials have set the tax at $500.At the equilibrium with the $500 tax:

The government has adopted an emissions tax if it:

Taxes are a more effective method of controlling pollution than are environmental standards because:

Which statement is CORRECT?

For the same amount of pollution emitted,an emissions tax is said to be more efficient than is an environmental standard because all polluters:

Which example illustrates an environmental policy that uses tradable pollution permits?

Use the following to answer question: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) Use Figure: Three Firms That Pollute.If the city imposes a tax of $400 per ton of pollution,firm B will produce _ tons of mercury,and firm A will produce _ tons of mercury than will firm C.

Suppose the federal government determines the total level of municipal sewage that can be discharged by cities along a river.If the cities are able to buy and sell rights to the total discharge level among themselves,then the government's environmental policy includes:

Suppose an emissions tax is imposed on all dairy farms in Wisconsin.This tax would: