Question 1

According to the U.S. data presented in the text, the highest proportion of operating and capital abatement costs is on recycling.

Accepted Answer

The highest proportion of operating and capital abatement costs is typically on pollution control technologies and waste management practices, not exclusively on recycling. Recycling is a part of waste management but not the sole or primary contributor to these costs.

Question 2

The value of reduced product variety due to an environmental policy initiative or regulation is an example of an implicit cost.

Accepted Answer

An implicit cost is a cost that is not directly paid in cash, but rather represents an opportunity cost arising from a company's decisions or external factors like government regulations. In this case, the reduced product variety resulting from an environmental policy initiative represents a loss of potential sales and revenue for the company, and is therefore an example of an implicit cost.

Question 3

The area under the MSC from the origin up to some abatement level, A₀, is the TSC of abating A₀ units.

Accepted Answer

This statement is correct according to the definition of Total Social Cost (TSC) and Marginal Social Cost (MSC). The area under the MSC curve represents the total cost of abatement, and the TSC is the sum of private cost and external cost involved in the production or consumption of a good or service. Therefore, the area under the MSC curve from the origin up to some abatement level represents the TSC of abating that level of pollution.

Question 4

According to the survey approach, abatement spending is estimated based on the lowest-cost technology available.

Accepted Answer

The survey approach estimates abatement spending based on a variety of methods, including expert opinions and analysis of specific technologies, rather than solely on the lowest-cost technology available.

Question 5

An advantage of the survey approach is that the estimates are derived from external experts.

Accepted Answer

The survey approach involves collecting data from respondents, who may or may not be external experts. Therefore, the estimates are derived from the responses of those surveyed, rather than external experts.

Question 6

The marginal social cost (MSC) curve linked to environmental policy is captured by the supply of the public good, environmental quality.

Accepted Answer

The marginal social cost (MSC) curve linked to environmental policy is captured by the supply of the public good, environmental quality. This is because pollution and other environmental damages imposed by economic activity involve external costs that are not fully considered by individuals or firms. The MSC captures the full cost to society of an additional unit of pollution or other environmental damage, including the private cost to the polluter and the external cost imposed on others. As such, the MSC curve intersects the demand for environmental quality and determines the socially optimal level of pollution reduction or other environmental protection measures.

Question 7

When abatement expenditures are estimated in accordance with the input provided directly from polluting sources, that estimation method is known as the direct approach.

Accepted Answer

The answer of When abatement expenditures are estimated in accordance...

Question 8

The engineering approach is difficult to use for proposed environmental initiatives because of uncertainty about future prices, the availability of raw materials, and expected costs.

Accepted Answer

The engineering approach relies heavily on quantitative factors such as prices and costs, and the uncertainty surrounding these variables can make it difficult to use for environmental initiatives. Other factors such as social and political considerations may also play a significant role in environmental decision-making, further complicating the use of the engineering approach.

Question 9

Along the TSC curve, the incremental cost associated with increasing abatement from A₁ to A₂ is found as the vertical distance between the TSC at A₁ and TSC at A₂.

Accepted Answer

This statement is true. The TSC (Total Social Cost) curve shows the total cost to society of each level of pollution abatement. The incremental cost of increasing abatement from one level to another is the vertical distance between the TSC curve at those two levels.

Question 10

Fixed costs are controllable in the short run but not the long run.

Accepted Answer

Fixed costs are not controllable in either the short or the long run, as they are expenses that do not vary with changes in the level of output or sales. In the short run, a business can only control its variable costs, such as labor and raw materials, while in the long run it can adjust its fixed costs by changing the size and scale of its operations.

Question 11

Expenditures on research and development represent the majority of spending on pollution and control in the United States.

Accepted Answer

Expenditures on pollution and control in the United States are primarily focused on compliance and implementation of regulations, rather than research and development. According to a report by the U.S. Environmental Protection Agency, only about 1% of total pollution control expenditures in the U.S. are directed towards research and development.

Question 12

The spending needed to maintain the utility level of society to compensate for resources used to achieve a cleaner environment is referred to as explicit environmental costs.

Accepted Answer

The spending needed to maintain the utility level of society to compensate for resources used to achieve a cleaner environment is referred to as implicit environmental costs, not explicit environmental costs. Explicit environmental costs refer to direct payments made for environmental management or protection.

Question 13

The accounting equivalent of variable costs is capital costs.

Accepted Answer

The accounting equivalent of variable costs is not capital costs. Capital costs refer to the expenses incurred to acquire or maintain fixed assets, such as buildings and equipment, while variable costs refer to expenses that change in direct proportion to the level of production or sales.

Question 14

When implementing environmental policy, all expenses paid by the government plus compliance costs paid by all economic sectors are known as explicit costs.

Accepted Answer

Explicit costs are the costs that are directly incurred and paid for by an entity, such as the government, in implementing an environmental policy. Compliance costs, which are the costs borne by all economic sectors in complying with the policy, are also considered explicit costs.

Question 15

A disadvantage of the survey approach is that polluting sources might not be sufficiently well informed to provide good estimates.

Accepted Answer

The statement is true. If polluting sources do not have enough knowledge or understanding of the issue, they might give inaccurate or unreliable responses, which can compromise the accuracy and effectiveness of the survey approach.

Question 16

Newly proposed controls on GHG emissions from motor vehicles are expected to elevate automobile prices.

Accepted Answer

The implementation of new controls on GHG emissions from motor vehicles is likely to increase the cost of producing and manufacturing vehicles, which ultimately leads to higher automobile prices.

Question 17

Marginal social cost is equivalent to the sum of the market-level marginal abatement costs and the government's marginal cost of enforcement.

Accepted Answer

Marginal social cost includes not only the cost of production or consumption borne by the market participants (i.e., marginal private cost), but also the external costs imposed on third parties, such as pollution or congestion (i.e., marginal external cost). Thus, to achieve the optimal level of pollution or environmental degradation, which is when MSC equals marginal social benefit, some form of intervention or regulation may be required. The sum of the market-level marginal abatement costs and the government's marginal cost of enforcement represents the total cost of reducing pollution or achieving the desired environmental goal, while internalizing the externalities. This cost should be compared to the social benefits of reducing pollution or preserving the environment, to determine the optimal level of intervention or regulation.

Question 18

According to available U.S. data, spending on pollution abatement and control has grown fairly steadily over time.

Accepted Answer

According to data from the U.S. Bureau of Economic Analysis, spending on pollution abatement and control has indeed grown fairly steadily over time. From 1972 to 2019, annual spending increased from $12.8 billion to $359.7 billion (in 2012 dollars).

Question 19

Incremental costs are the accumulated expenditures associated with an environmental policy initiative.

Accepted Answer

Incremental costs refer to the additional costs incurred when increasing the level of an activity or service, not specifically to accumulated expenditures associated with an environmental policy initiative.

Question 20

Marginal social cost (MSC) of some abatement level, A₁, can be determined as the area under the total social cost (TSC) function up to A₁.

Accepted Answer

Marginal social cost (MSC) refers to the additional cost associated with a one-unit increase in the level of an activity (such as pollution abatement) and is represented by the slope of the Total Social Cost (TSC) curve at any given point, not the area under the TSC curve up to that point.

Quiz 8: Assessing Costs for Environmental Decision Making