Question 1

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 will increase the cost of production for the firms, leading to a higher equilibrium price and a decrease in the equilibrium quantity produced and consumed (options A and B). The tax may also deter some firms from producing the good, leading to a decrease in market supply (option C). However, the tax does not increase the demand for the good (option D).

Question 2

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

Accepted Answer

Government imposed quantitative limits on pollution is an example of the command and control approach which sets specific standards for pollution reduction without offering flexibility or incentives for firms to innovate or reduce their pollution levels beyond the set limit.

Question 3

A product is considered to be rivalrous if

Accepted Answer

A rivalrous good is a good where one person's use of it diminishes another person's use of it. In other words, consumption of the good by one person reduces the amount of the good available for others to consume. Therefore, option C is the correct answer. Options A and B are similar, but option A describes excludable goods while option B describes non-excludable goods. Option D describes a common-pool resource where a good is jointly owned by a community.

Question 4

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

Accepted Answer

Imposing a tax on sweetened soda would cause consumers to internalize the negative externality (the cost of health problems associated with consuming too much soda) by increasing the price they pay for the product. This would lead consumers to consume less soda, reducing the negative externalities associated with its consumption.

Question 5

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 aims to reduce carbon dioxide emissions by establishing a market-based system for trading greenhouse gas emissions allowances. It does not aim to eliminate air pollution and greenhouse gases completely or impose a carbon tax on all industries emitting carbon dioxide. Additionally, it is specific to European Union nations and does not involve providing developing countries with emission reduction technology.

Question 6

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 7

Figure 5-6 
 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox 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 chicken pox vaccinations is for governments to subsidize 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 government must provide a per-vaccination Pigovian subsidy of (PE - PG) to internalize the external benefits. This is because the external benefit is the difference between the social benefit of vaccination (PE) and the private benefit of vaccination (PG).

Question 8

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 and reduce the market price, making it more attractive for consumers to purchase the product. This will increase the consumption of the product that creates positive externalities.

Question 9

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 10

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 require extensive monitoring and enforcement, which can be costly for both the regulator and the polluter. This cost can be passed on to consumers in the form of higher prices or taxes, making it a less attractive option for pollution reduction.

Question 11

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 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

It is possible that for some firms in the industry, other methods of reducing pollution may be more cost effective than installing the mandated equipment.

Question 13

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

Accepted Answer

The 2005 European Union Emission Trading Scheme is a cap-and-trade system. This means that there is a cap or limit on the total amount of emissions that are allowed, and companies must obtain permits for their emissions. If a company emits less than its permitted amount, it can sell its unused permits to other companies that need them. This creates a market-based incentive for companies to reduce their emissions, as they can profit from selling unused permits.

Question 14

What is the rationale behind a marketable emission allowance scheme?

Accepted Answer

The answer of What is the rationale behind a marketable...

Question 15

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 16

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 17

Figure 5-6 
 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox 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 chicken pox vaccinations?

Accepted Answer

The net gain to society as a result of subsidizing chicken pox vaccinations is equal to the social benefit minus the cost. The value of the net gain to society can be represented by the area of the triangle FEG, which is equal to (PF-PB) x QE/2. This represents the difference between the social benefit (PF) and the private cost (PB) multiplied by the quantity of vaccinations (QE) and divided by 2. Therefore, the answer is C, value equal to the area of FEG.

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 specific targets, standards, or regulations for pollution reduction. Option a and b involve such regulation, while option c and d are market-based approaches (using incentives and taxes) that rely on market forces to incentivize pollution reduction. Therefore, options a and b are examples of command and control, while c and d are not.

Question 19

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

Accepted Answer

The answer of Some policymakers have argue that products like...

Question 20

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...

Quiz 5: Externalities, environmental Policy, and Public Goods