Question 1

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

The answer of If government officials set an emissions tax...

Question 2

Which of the following statements is CORRECT?
A) An emissions tax is a more efficient way to reduce pollution than 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 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 is considered more efficient because it provides a financial incentive for all polluters to reduce emissions until their marginal cost of reduction equals the tax, leading to an equalization of the marginal benefit of pollution reduction across all sources.

Question 3

Suppose 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

The emissions tax is too low because the marginal social cost of pollution exceeds the marginal social benefit of pollution.

Question 4

Use the following to answer question:
Figure: Environmental Standards versus Emissions Taxes 
-(Figure: Environmental Standards versus Emissions Taxes) In the figure Environmental Standards versus Emissions Taxes, 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.
A) environmental standard; 300
B) emissions tax; 600
C) environmental standard; 600
D) emissions tax; 200

Accepted Answer

An emissions tax is more efficient because it allows firms to reduce emissions at the lowest cost. The total pollution would be 600 tons, as the goal is to limit emissions to that amount.

Question 5

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

An emissions tax is a tax on pollution or carbon emissions caused by certain activities, such as driving. Option B is the closest to an actual emissions tax, as it charges automobile drivers directly for their emissions. Option A involves privatization of air, which is not an efficient or desirable approach. Option C involves a subsidy for reducing emissions, which is not a tax. Option D involves a mandate for specific technology, which is not an emissions tax.

Question 6

Which of the following is an environmental policy based on 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 a certain level of automobile emissions
D) ignoring pollution and letting private markets operate without government interference

Accepted Answer

Tradable pollution permits involve a system where rights to emit a certain level of pollution can be bought and sold, creating a market for pollution rights.

Question 7

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

The imposition of an emissions tax on dairy farmers would increase their costs of production. This would result in a decrease in supply as dairy farmers reduce their output to avoid the tax, leading to a reduction in the supply of milk in Wisconsin.

Question 8

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

Accepted Answer

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

Question 9

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 intended to reduce external costs, which are costs imposed on individuals or society as a whole as a result of economic activity. External costs are not accounted for in the price of goods or services, which can lead to overconsumption or overproduction of the good. A Pigouvian tax is designed to internalize these external costs by increasing the cost of production or consumption, reducing the quantity of the good consumed or produced, and reducing the negative externalities associated with the good.

Question 10

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) regulations.
C) tradable pollution permits.
D) command and control.

Accepted Answer

The government's policy includes tradable pollution permits, which allow cities to buy and sell rights to discharge sewage, creating a market for pollution rights.

Question 11

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

Accepted Answer

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

Question 12

Suppose government officials have set an emissions tax to reduce pollution. Assume 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

The tax is set below the optimal level, meaning it is not high enough to reduce pollution to the socially optimal level, resulting in too much pollution.

Question 13

Tradable pollution permits are a(n):
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 a market-based approach where permits are issued that allow the holder to emit a certain amount of pollution. These permits can be bought and sold, providing economic incentives for reducing emissions.

Question 14

Suppose government officials have set an emissions tax to reduce pollution. Assume 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 government officials have set an emissions...

Question 15

Taxes are a more effective method of controlling pollution than 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 provide economic incentives for polluters to reduce emissions at the lowest cost, encouraging innovation and efficiency, whereas standards are rigid and do not adapt to individual circumstances.

Question 16

Use the following to answer question:
Figure: The Optimal Quantity of Pollution 
-(Figure: The Optimal Quantity of Pollution) The figure The Optimal Quantity of Pollution 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:
A) $500.
B) $250.
C) $167.
D) $83.

Accepted Answer

The optimal Pigouvian tax is set at the point where MSC = MSB. In the figure, this occurs at a pollution level of 100 units and a tax of $167 per unit.

Question 17

For the same amount of pollution emitted, an emissions tax is said to be more efficient than 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 allows polluters to emit pollution up to the point where the marginal benefit of polluting equals the tax, leading to cost-effective pollution reduction across different polluters.

Question 18

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 19

Use the following to answer questions:
Figure: Three Firms That Pollute 
-(Figure: Three Firms that Pollute) Look at the 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 likely has the highest marginal cost of reducing pollution, making it more costly for them to reduce emissions to the allowed level compared to the other firms.

Question 20

The 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 are licenses that can be bought and sold, allowing the holder to emit a certain amount of pollution.

Quiz 16: Externalities

If government officials set an emissions tax too high:

Which of the following statements is CORRECT?

Suppose 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:

The government has adopted an emissions tax if it:

Which of the following is an environmental policy based on tradable pollution permits?

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

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

Pigouvian taxes are designed to reduce:

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:

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

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

Tradable pollution permits are a(n) :

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

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

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

If an emissions tax is too low:

Use the following to answer questions: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) Look at the 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?

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