ME quiz 12

established by governments when they issue tradable pollution permits.

Markets for the right to pollute are: a means of encouraging more pollution. likely to lessen incentives to develop and implement technology that reduces pollution. established by individual firms when they reduce emissions. established by governments when they issue tradable pollution permits.

provide a subsidy to firms for each unit of the good consumed to achieve the socially optimal level of output.

To encourage consumption of a good that generates a positive externality, the BEST option for policymakers is to: penalize firms through higher taxes unless they produce the socially optimal level of output. mandate consumption of the good at the socially optimal level of output. provide a subsidy to firms for each unit of the good consumed to achieve the socially optimal level of output. allow the market to reach equilibrium on its own.

increases; stays the same

Under a system of tradable emissions permits, if the demand for goods that produce emissions shifts to the right, the equilibrium price of permits _____, and the equilibrium quantity _____. increases; stays the same decreases; increases stays the same; increases decreases; decreases

too little pollution because the marginal social benefit would exceed the marginal social cost.

(Figure: Efficiency and Pollution in the Market for Vehicle Emissions) Use Figure: Efficiency and Pollution in the Market for Vehicle Emissions. Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society. If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons, there would be: a socially optimal quantity of pollution. too much pollution because the marginal social cost would exceed the marginal social benefit. too little pollution because the marginal social benefit would exceed the marginal social cost. too much pollution because any pollution is too much from an economist's perspective.

$167.

(Figure: The Optimal Quantity of Pollution in the Market for Benzene Waste) Use Figure: The Optimal Quantity of Pollution in the Market for Benzene Waste. The figure shows the marginal social cost (MSC) and marginal social benefit (MSB) for firms that pollute the air with benzene fumes. Using the figure, the optimal Pigouvian tax per unit of pollution is: $250. $167. $500. $83.

it is producing below the socially optimal level of output.

(Figure: The Quantity of Pollution in Coal Production) Use Figure: The Quantity of Pollution in Coal Production. When this economy produces 50 tons of emissions: the marginal social cost equals the marginal social benefit. the marginal social cost is greater than the marginal social benefit. it is producing below the socially optimal level of output. it is producing at its socially optimal level of output.

0

(Table: Positive Externalities from State Parks) Use: Table: Positive Externalities from State Parks. The table shows the marginal social benefit and marginal social cost of preserving various amounts of land for state parks. Suppose that state parks yield benefits for the general public but that the marginal benefit that any one individual receives from state parks is close to zero. Without government intervention, the amount of land dedicated to state parks will be _____ acres. 9 1 3 0

external costs.

A Pigouvian tax is designed to reduce: the marginal cost of production. the marginal benefit of consumption. external benefits. external costs.

MSB = MSC.

The efficient rate of emissions occurs when: MSB < MSC. There is no efficient or acceptable rate of emissions. MSB = MSC. MSB > MSC.

decrease the equilibrium quantity.

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external costs, a tax imposed on sellers will: increase the equilibrium quantity. have no effect on the equilibrium price. decrease the equilibrium quantity. decrease the equilibrium price.

not enough; MSB > MSC

(Figure: CO2 Emissions, MSB and MSC of Pollution) Use Figure: CO2 Emissions, MSB and MSC of Pollution. Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society. If the current level of pollution is Q1, _____ pollution is being emitted because _____. the socially optimal amount of; MSB = MSC too much; MSB > MSC not enough; MSB < MSC not enough; MSB > MSC

emissions tax; 600

(Figure: Environmental Standards versus Emissions Taxes in the Market for Coal Fired Electricity) Use Figure: Environmental Standards versus Emissions Taxes in the Market for Coal Fired Electricity. In the figure, if the goal is to limit the total emissions of firms A and B to 600 tons, the MOST efficient solution is an _____, and total pollution would be _____ tons. environmental standard; 600 environmental standard; 300 emissions tax; 200 emissions tax; 600

designed to encourage activities that generate external benefits.

A Pigouvian subsidy is: appropriate when the marginal social cost curve is above the marginal cost of production curve. designed to encourage activities that generate external benefits. appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level. designed to internalize a negative externality.

too many of society's resources are being used to produce paper.

A paper manufacturing plant dumps pollution into a river. This pollution leads to higher costs and disruption for fishermen on the river, for which they are not compensated. In this situation: the ideal amount of society's resources are being used to produce paper. there is an external benefit to society from paper production. too few of society's resources are being used to produce paper. too many of society's resources are being used to produce paper.

its value to an individual increases when the number of other people using it increases.

Facebook is subject to network externalities because: its value to an individual increases when the number of other people using it increases. its value to an individual declines when the number of other people using it increases. its value is determined only by its marginal private benefit. it yields negative externalities.

rise, and output will likely fall.

If a product that generates a negative externality is priced so as to internalize the externality, its price will likely: fall, and output will likely rise. rise, and output will likely fall. not change, but output will likely fall. rise, but output will likely stay the same.

the price of a bushel of corn will be less than the marginal social cost of the last bushel of corn sold.

The harvesting of corn generates external costs in the form of methane gas emissions. Without government regulation: the price of a bushel of corn will be less than the marginal social benefit of the last bushel of corn sold. the price of a bushel of corn will be less than the marginal cost of the last bushel of corn sold to the corn farmer who sold it. the price of a bushel of corn will be less than the marginal social cost of the last bushel of corn sold. too little corn will be harvested.

I THINK:the marginal social benefit of an additional unit of pollution is less than the marginal social cost of the additional unit.

The optimal level of pollution is the quantity at which: the marginal social benefit of an additional unit of pollution is less than the marginal social cost of the additional unit. the total benefit of pollution equals its total cost. the marginal social benefit of an additional unit of pollution is greater than the marginal social cost of the additional unit. the total benefit of pollution exceeds its total cost by the greatest possible amount.

Vaccination

Which is the best example of a good that generates a positive consumption externality? Vaccination Undeveloped forests Use of an electric scooter on a college campus A power plant

the Coase theorem.

Your college roommate has the right to practice her trumpet during the day. You, however, find that studying during the day is most conducive to good grades, and her trumpet-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her trumpet at other times or elsewhere. This is an example of emission permits. a Pigouvian subsidy. the Coase theorem. a Pigouvian tax.