Question 1

A paper mill discharges chemicals into a river which washes 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 = Z + 2Q, and MB = 35 - 0.5Q. What is the level of Z for which the marginal external cost at the competitive free- market equilibrium is zero?

Accepted Answer

The marginal external cost is equal to the difference between the social marginal cost and the private marginal cost. At the competitive free-market equilibrium, the marginal external cost is zero. Therefore, the social marginal cost must be equal to the private marginal cost. The social marginal cost is equal to Z + 2Q, and the private marginal cost is equal to 2Q. Therefore, Z must be equal to -15.

Question 2

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.  FIGURE 17- 4
-Refer to Figure 17- 4. Firms X and Y have an emissions tax of $t imposed on each unit of pollution they produce. Firm X will choose to abate pollution of units and Firm Y will choose to abate pollution of units.

Accepted Answer

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

Question 3

The diagram below shows the market for tradable pollution permits.  Figure 17- 7
-Refer to Figure 17- 7, which depicts the 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 4

Consider the following equation: $$\mathrm { GHG } = \frac { \mathrm { GHG } } { \text { Energy } } \times \frac { \text { Energy } } { \mathrm { GDP } } \times \mathrm { GDP } ,$$
Where GHG = world annual emissions of greenhouse gases Energy = world annual amount of energy consumed GDP = world's annual gross domestic product
Suppose GHG emissions decreased by 6 percent between 2010 and 2012, a period when GDP increased by 4 percent and Energy/GDP decreased by 2 percent. We can conclude that

Accepted Answer

The answer of Consider the following equation: \[\mathrm { GHG...

Question 5

The table below shows the marginal benefit and marginal cost of pollution abatement. $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Units of } \
\text { Pollution } \
\text { Abatement }
\end{array} & \text { MB } &\text { MC } \
\hline 1 & 120 & 5 \
\hline 2 & 115 & 15 \
\hline 3 & 105 & 30 \
\hline 4 & 90 & 50 \
\hline 5 & 70 & 70 \
\hline 6 & 45 & 95 \
\hline 7 & 15 & 125 \
\hline 8 & 0 & 155 \
\hline
\end{array}\
\text { TABLE 17- } 1
\end{array}$$
-Refer to Table 17- 1. Suppose a public authority has the mandate to maximize social welfare by choosing the appropriate amount of pollution abatement. The total net benefit from the optimal amount of pollution abatement is

Accepted Answer

The answer of The table below shows the marginal benefit...

Question 6

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

Accepted Answer

If emissions permits are traded freely between profit-maximizing firms, marginal abatement costs will be equalized across firms. This is because firms will choose to reduce pollution up to the point where the marginal cost of reducing pollution is equal to the market price of the emissions permit. This ensures that pollution abatement is carried out in the most cost-effective manner, leading to the most efficient allocation of resources.

Question 7

The social marginal cost of the production of snowmobiles

Accepted Answer

The social marginal cost includes all externalities, such as noise pollution, that affect third parties not involved in the production or consumption of the good.

Question 8

Between 1990 and 2004, Canada's greenhouse gas emissions by percent.

Accepted Answer

Between 1990 and 2004, Canada's greenhouse gas emissions increased by more than 25 percent.

Question 9

Automobile emissions standards are an example of

Accepted Answer

Automobile emissions standards are a direct pollution control policy. These policies set limits on the amount of pollutants that a vehicle is allowed to emit, and mandate that all vehicles meet these limits.

Question 10

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

Under the cap and trade system, the firm has a limit on the amount of pollution it can emit. The marginal cost of pollution abatement is $5 per unit, meaning it will cost the firm $5 to reduce one unit of pollution. However, if the price of the permit is $3 per unit, it would be financially beneficial for the firm to buy permits and abate less pollution. This is because the cost to reduce one unit of pollution is more than the cost of a permit. Therefore, the firm will choose to buy permits and abate less pollution. Option B correctly identifies this choice.

Question 11

A downward- sloping marginal benefit curve for pollution abatement means that

Accepted Answer

A downward-sloping marginal benefit curve for pollution abatement indicates that there are decreasing incremental benefits to be realized from additional increments of pollution abatement. In simpler terms, the initial steps towards reducing pollution may result in significant benefits, but as more and more pollution is reduced, the additional benefits become smaller and smaller. This is because the most visible and hazardous sources of pollution are typically addressed first, leaving smaller and less significant sources for later. Ultimately, the cost of removing each additional unit of pollution exceeds the benefits gained from doing so, resulting in a downward-sloping marginal benefit curve.

Question 12

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good.  FIGURE 17- 1
-Refer to Figure 17- 1. The socially optimal level of output is

Accepted Answer

The socially optimal level of output is where MCs intersects MB, which occurs at Q2. This point takes into account the external costs imposed by the production of the good and maximizes overall societal welfare. Anything below Q2, such as Q1, results in a deadweight loss (inefficiency) because the benefit to consumers exceeds the cost of production. Anything above Q2, such as Q3, results in overproduction of the good and imposes external costs on society that are not accounted for by private firms. Therefore, the socially optimal level of output is Q2.

Question 13

Consider two firms, A and B, that must engage in pollution abatement. If Firm A has a lower marginal cost of pollution abatement than Firm B, then

Accepted Answer

Since Firm A has a lower marginal cost of pollution abatement than Firm B, it means that it is cheaper for Firm A to reduce pollution by a certain amount compared to Firm B. Reallocation of some of Firm B's abatement activity to Firm A can keep the total abatement constant but reduce the total cost of abatement. This is because Firm B can reduce its abatement activity to the level where the marginal cost equals that of Firm A, and the remaining abatement can be done by Firm A at a cheaper cost, resulting in overall cost savings.

Question 14

The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2.  FIGURE 17- 5
-Refer to Figure 17- 5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposes an emissions tax of $20 per unit of emissions,

Accepted Answer

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

Question 15

All of the following are examples of direct pollution controls EXCEPT

Accepted Answer

Legislation imposing per-unit taxes on harmful emissions is an example of an economic incentive or market-based approach, not a direct pollution control.

Question 16

A paper mill discharges chemicals into a river which washes 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. The allocatively efficient level of output is units.

Accepted Answer

The answer of A paper mill discharges chemicals into a...

Question 17

In 2006, Professor Nicolas Stern of the United Kingdom stated "Climate change is the greatest market failure the world has ever seen." Which of the following statements describes the biggest challenge to efforts to begin correcting this market failure?

Accepted Answer

Climate change is a global problem, and therefore requires coordinated efforts among all major governments to effectively address it. Without policy design that is coordinated globally, individual countries may not do enough to reduce emissions, resulting in an inadequate response to the magnitude of the problem.

Question 18

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.  FIGURE 17- 4
-Refer to Figure 17- 4. Ignore the horizontal line at t. If the government wanted to impose an emissions tax, efficiency requires that it

Accepted Answer

Efficiency requires that the government levy a tax at the same rate to both firms, as this ensures that both firms face the same marginal cost of pollution, leading to an efficient allocation of abatement efforts.

Question 19

Suppose the government imposes an emissions tax of $t on each unit of pollution produced by a firm. Under which of the following circumstances would the tax rate be set too high to achieve allocative efficiency?

Accepted Answer

If the tax rate is greater than the marginal external cost of pollution, then the tax would be considered too high because it would lead to a deadweight loss and inefficient allocation of resources. The optimal tax rate should be set at the level of the marginal external cost to achieve allocative efficiency.

Question 20

When designing a policy to reduce polluting emissions, policymakers are unlikely to know with certainty what the marginal cost of abatement is for each firm. If policymakers set an emissions cap of X units, and issue tradable permits for this amount, then they

Accepted Answer

Policymakers know the total reduction in emissions because the cap is set at X units, but they do not know the cost to firms, as the marginal cost of abatement varies across firms.

Quiz 17: The Economics of Environmental Protection

The diagram below shows the market for tradable pollution permits. Figure 17- 7 -Refer to Figure 17- 7, which depicts the market for tradable pollution permits. Improvements in firms' abatement technology will be expected to