Question 1

The Environment Ministry in Japan proposed a new carbon tax to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels and raise the cost of using fossil fuels. How do most economists view a tax such as this?

Accepted Answer

Economists generally support taxes on pollution, such as carbon taxes, because they internalize the external costs of pollution, prompting decision makers to consider the full social costs of their actions.

Question 2

The optimal quantity of pollution control occurs at the point where the:

Accepted Answer

The optimal quantity of pollution control is achieved when the marginal social cost of pollution control equals the marginal social benefit, ensuring resources are used efficiently.

Question 3

A per-unit tax designed to internalize the costs of production imposed on third parties is called:

Accepted Answer

An effluent fee is a type of per-unit tax imposed to internalize the external costs of production, such as pollution, that affect third parties.

Question 4

Refer to the graph shown. The price and quantity that would prevail if all social costs and benefits were taken into account is:

Accepted Answer

The answer of Refer to the graph shown. The price...

Question 5

Economists tend to distrust voluntary approaches as a way to deal with externalities. What is their most common concern?

Accepted Answer

Voluntary approaches rely on individuals acting against their self-interest, which economists believe is unlikely to happen consistently, leading to ineffective management of externalities.

Question 6

An economist is most likely to support all of the following methods to address the negative externalities created by the waste from newspapers except:

Accepted Answer

Economists generally prefer solutions that internalize externalities, such as taxes or market-based approaches, rather than having the government bear the cost, which can lead to inefficiencies and does not incentivize reduction of the externality.

Question 7

The efficient amount of pollution control is:

Accepted Answer

The efficient amount of pollution control is achieved when the marginal social benefit of pollution control equals the marginal social cost, ensuring that resources are allocated optimally without over or under-controlling pollution.

Question 8

The Environment Ministry in Japan proposed a new carbon tax to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels, and the expectation is that it would be largely passed on to consumers. This proposal is an example of a:

Accepted Answer

The proposed carbon tax is a tax incentive policy aimed at reducing carbon emissions by making fossil fuels more expensive, thereby encouraging producers, importers, and consumers to reduce their carbon footprint.

Question 9

A policy in which the marginal costs of undertaking the policy equal the marginal benefits of that policy is best called an:

Accepted Answer

An optimal policy is one where the marginal costs equal the marginal benefits, ensuring that resources are used efficiently.

Question 10

Economists are most likely to suggest that societies address the inefficiencies created by negative externalities by:

Accepted Answer

Economists often recommend internalizing negative externalities by making the price reflect the true cost, which can be achieved through taxes or fees that incorporate the external costs into the market price.

Question 11

Since trash generation involves an externality, the way economists might address the problem of trash generation that is most likely to be optimal is by:

Accepted Answer

Integrating the cost of the externality into the initial price of the good internalizes the externality, aligning private costs with social costs, and incentivizing producers and consumers to reduce waste.

Question 12

Economists' attitude toward voluntary programs causes them to:

Accepted Answer

Economists are often skeptical of voluntary programs because they may lack the necessary incentives or enforcement mechanisms to ensure widespread participation and effectiveness.

Question 13

An optimal corrective tax levied on polluters will:

Accepted Answer

An optimal corrective tax, also known as a Pigouvian tax, is set equal to the marginal external cost of pollution, which is the cost imposed on third parties. This aligns private costs with social costs, leading to an efficient market outcome.

Question 14

An efficient policy to reduce pollution would reduce pollution to the point where:

Accepted Answer

An efficient policy balances costs and benefits, so pollution should be reduced until the marginal cost of reduction equals the marginal benefit.

Question 15

In 1990, the Clean Air Act was amended to place a national cap on sulfur dioxide emissions, giving electric utilities an allowance of a set amount of emissions and allowing the utilities to trade their allowances. This type of plan is:

Accepted Answer

Cap-and-trade systems are more efficient than direct regulation because they allow companies with higher marginal benefits from emissions to buy additional allowances, optimizing overall costs and reducing emissions where it is cheapest to do so.

Question 16

The Environment Ministry in Japan proposed a new carbon tax to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels, and the expectation is that it would be largely passed on to consumers. The rationale for this tax is that it will:

Accepted Answer

The carbon tax is intended to reduce carbon dioxide emissions, which are a negative externality because they impose costs on society that are not reflected in the market price of fossil fuels.

Question 17

Public television periodically runs pledge drives to raise money. Only a small percentage of the people who benefit from public television are willing to pay. What do economists call the people who do not pay?

Accepted Answer

Economists refer to individuals who benefit from resources, goods, or services without paying for them as "free riders." This term is commonly used in the context of public goods, where it is difficult to exclude non-payers from benefiting.

Question 18

A policy is considered optimal if it:

Accepted Answer

An optimal policy is one where marginal costs equal marginal benefits, ensuring that resources are allocated efficiently and maximizing net benefits.

Question 19

If government undertakes to reduce water usage by using a market incentive plan:

Accepted Answer

A market incentive plan typically involves creating a system where consumers can trade rights or certificates, allowing those who reduce usage more than required to sell their excess reduction to others who need it.

Question 20

Public television periodically runs pledge drives to raise money. Only a small percentage of the people who benefit from public television are willing to pay. This low percentage of people willing to contribute illustrates a difficulty with:

Accepted Answer

Voluntary programs often face challenges because they rely on individuals choosing to contribute, which can result in low participation rates, as seen with the small percentage of people willing to pay during public television pledge drives.

Quiz 8: Market Failure Versus Government Failure