Question 1

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

Accepted Answer

Command and control approaches involve strict regulations and monitoring to ensure compliance. However, the costs of monitoring can be high, particularly for complex pollutants or for monitoring emissions from many different sources.

Question 2

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good.All of the following will result from the tax except

Accepted Answer

The tax would increase the cost of production for the firms producing the pollution generating good, leading to a decrease in the equilibrium quantity produced and consumed, and potentially a decrease in the market supply of the good. This would result in a higher equilibrium market price. However, the tax would also increase the overall cost of purchasing the good, and assuming no change in consumer preferences or income, would lead to a decrease in the demand for the good rather than an increase.

Question 3

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Accepted Answer

The answer of When a tax on output is imposed...

Question 4

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soft drinks generate negative externalities in consumption.If the government decided to impose a tax on pop, the government will cause

Accepted Answer

By imposing a tax on sweetened soft drinks, the government is making consumers pay a higher price for the product, thereby internalizing the externalities associated with the consumption of these products. Consumers will be forced to bear the full cost of their consumption decision, including any negative externalities, such as the health effects caused by excessive consumption of sugar-sweetened beverages. This is likely to reduce the demand for sweetened soft drinks and incentivize consumers to switch to healthier alternatives. In this way, the tax helps to internalize the negative externalities associated with the consumption of sweetened soft drinks.

Question 5

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

The answer of Briefly explain the command-and-control approach in dealing...

Question 6

Figure 5.5
  
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5.5 illustrates the situation in the toilet paper market.
-Refer to Figure 5.5.Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

The tax will increase the production cost for each producer by $50 per ton, shifting the supply curve leftward from the original demand curve. This will increase the price of toilet paper, but not by the full amount of the tax since some of the burden will be borne by producers who may reduce their output. The size of the price increase will depend on the elasticity of demand and supply. Therefore, the market price of toilet paper will rise by less than $50.

Question 7

Economist A.C.Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Accepted Answer

The answer of Economist A.C.Pigou argued that to deal with...

Question 8

Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange.Several environmental groups have raised money to buy allowances (which they subsequently destroy).As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts.As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever."
Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market?

Accepted Answer

The answer of Anyone can purchase sulfur dioxide emissions allowances...

Question 9

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soft drinks generate negative externalities in consumption.All else equal, if the government decided to impose a tax on pop, the equilibrium quantity of pop would ________ and the equilibrium price of soda would ________.

Accepted Answer

Imposing a tax on pop would increase its price to consumers. This would result in a decrease in demand for the product, leading to a decrease in equilibrium quantity. Meanwhile, the tax would increase the cost of production for firms, causing them to increase the price to consumers. Therefore, the equilibrium price of soda would increase.

Question 10

What is the rationale behind a marketable emission allowance scheme?

Accepted Answer

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Question 11

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

The government imposed quantitative limits on pollution is an example of the command and control approach to pollution reduction, which involves setting standards or regulations and enforcing them through penalties or fines. Other options include Pigovian method, which involves taxing firms based on the amount of pollution they produce, Coasian solution, which involves negotiating between polluters and affected parties, and a tradable emission allowance system, which allows firms to buy and sell the right to pollute.

Question 12

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Accepted Answer

Different firms in the leather tannery industry may have different production processes and pollution levels, which means that some firms may have more cost-effective methods of reducing pollution than installing the mandated pollution abatement equipment.

Question 13

The 2005 European Union Emission Trading Scheme is an example of a

Accepted Answer

The European Union Emission Trading Scheme is a cap-and-trade system, which sets limits (caps) on the amount of emissions that certain industries are allowed to produce. Companies can trade (buy and sell) emissions permits within these caps, creating a market-based solution to pollution control.

Question 14

Figure 5.6
  
Shingles vaccinations for adults benefit society by protecting adults and by preventing an epidemic of the disease. Thus, the social benefits of shingles vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5.6.
-Refer to Figure 5.6.What is the value of the net gain to society as a result of subsidizing shingles vaccinations?

Accepted Answer

The value of the net gain to society as a result of subsidizing shingles vaccinations is equal to the area of FEG, which represents the difference between the social benefit (SF) and the private cost (PC) of each vaccination. This is because the social benefits of shingles vaccinations exceed the private benefit for any quantity of vaccinations. Choice A is incorrect because PE represents the private benefit of each vaccination, not the net gain to society. Choice B is incorrect because PF represents the private cost of each vaccination, not the net gain to society. Choice D is incorrect because it includes the private benefit (PE) and private cost (PF) components, which are not relevant to the net gain to society.

Question 15

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

By subsidizing the production of the product, the government can increase the supply of the product in the market, which will lead to a reduction in prices. This will make the product more affordable for consumers, leading to an increase in consumption. Since the product creates positive externalities, increasing its consumption will benefit society as a whole.

Question 16

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Accepted Answer

The answer of What is a Pigovian tax? What happens...

Question 17

A major problem with using tradable emissions allowance system to control pollution is

Accepted Answer

The answer of A major problem with using tradable emissions...

Question 18

Consider the following methods of pollution reduction:
a)the government sets a target for maximum emissions
b)the government mandates the installation of specific pollution abatement equipment
c)the government imposes a per unit tax on the good that creates pollution
d)the government gives firms a tax rebate for every unit of pollution abated
Which of the above is an example of a command and control approach to reducing pollution?

Accepted Answer

A command-and-control approach involves the government setting explicit regulations and standards for polluting firms to follow. Options A and B both involve the implementation of such standards, while options C and D utilize market-based incentives to encourage pollution reduction. Therefore, only options A and B are examples of command-and-control, and the best choice is C as it includes both.

Question 19

Figure 5.6
  
Shingles vaccinations for adults benefit society by protecting adults and by preventing an epidemic of the disease. Thus, the social benefits of shingles vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5.6.
-Refer to Figure 5.6.One way to obtain the economically efficient amount of shingles vaccinations is for governments to subsidize the consumers of these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

Accepted Answer

The Pigovian subsidy is equal to the difference between the marginal external benefit and the marginal private benefit. In this case, the marginal external benefit is PE and the marginal private benefit is PG. Therefore, the Pigovian subsidy is (PE - PG).

Question 20

The 2005 European Union Emission Trading Scheme is an agreement among 24 European Union nations to

Accepted Answer

The 2005 European Union Emission Trading Scheme is an agreement to reduce carbon dioxide emissions. It does not aim to eliminate all air pollution and greenhouse gases or provide developing countries with technology to reduce emissions. It also does not impose a carbon tax on all industries.

Quiz 5: Externalities, Environmental Policy, and Public Goods