Microeconomics Exam 3 P1

In Figure 28.1, if the externality is internalized, the rate of output will be

200 units

In Figure 28.1, if pollution costs are external, the rate of output will be

320 units

According to EPA studies, the United States generates over ____ billion tons of solid waste each year.

5 According to EPA estimates, the United States generates over 5 billion tons of solid waste each year. This figure includes more than 30 billion bottles, 60 billion cans, 100 million tires, and millions of discarded automobiles and major appliances

Only ____ percent of the U.S. population is served by a system of sewers and adequate water treatment plants.

70 Only 70 percent of the U.S. population is served by a system of sewers and adequate (secondary) treatment plants.

Electric power plants account for over ____ percent of all thermal discharges.

80 Electric power plants account for over 80 percent of all thermal discharges, with primary metal, chemical, and petroleum refining plants accounting for nearly all the rest.

According to the EPA, using known and available technology, what percentage of the current air and water pollution could be eliminated with current resources?

95 percent. The EPA estimates that 95 percent of current air and water pollution could be eliminated by known and available technology.

Sophisticated waste treatment plants can reduce organic pollution by up to ____ percent.

99 Sophisticated waste treatment plants can reduce organic pollution by up to 99 percent. However, only 70 percent of the U.S. population is served by a system of sewers and adequate (secondary) treatment plants.

When the government requires specific processes for reducing pollution, it is using

A command-and-control approach

When thinking about the real costs of environmental cleanup, we should take into consideration

A comparison of the costs of cleanup to the large size of the U.S. economy.

If a firm adopts a production process that is costly in order to reduce pollution, the result is

A decrease in the profit-maximizing rate of output and a decrease in the firm's profits. Pollution abatement will increase the costs to the firm, shifting the MC curve upward (supply curve leftward), resulting in lower output, higher prices, and lower profits. The ATC will shift up, not down.

An emission charge is

A fee imposed on polluters based on the quantity of pollution they generate.

An example of a negative externality in consumption is

A passenger on a train littering

In general, a firm's efficiency decision will result in

A pollution-causing production process if that process minimizes costs. The efficiency decision requires a producer to choose the production process that minimizes private costs for any particular rate of output.

Suppose the government allows these two firms to trade pollution permits. The most efficient transaction would result in

A reduction in emissions by the paper plant and no change for the steel plant.

The command-and-control strategy for pollution reduction refers to

A requirement specifying the level of pollution and the process to reduce pollution.

An external cost is borne by

A third party to the market transaction.

If the tax on gasoline is increased to provide incentives to curb air pollution, then the tax serves as

A user fee.

The marginal cost to society of reducing pollution increases as the level of pollution reduction increases because of the law of

Diminishing returns.

A polluting company can be billed in proportion to its pollution through

Emission charges

Which of the following is a market incentive to discourage pollution?

Emission charges and user charges

If a firm that pollutes wants to maximize profits, it will produce where

Marginal revenue and private marginal cost are equal.

When external costs exist,

Market prices do not convey the full costs of production

The reason pollution occurs is because people tend to

Maximize their personal welfare, balancing private benefits against private costs.

The command-and-control approach to pollution reduction

May be less efficient than a market-based option

The true economic costs of pollution control are the

Most highly valued alternative goods and services that could be produced if the resources were not used to reduce pollution. The use of any scarce resource involves an opportunity cost-the most desired goods or services that are forgone in order to obtain something else

Under the market mechanism, a market characterized by external costs will produce too

Much output and too much pollution.

If firms were charged the full social opportunity cost of the resources they used, there would be

No external costs

All of the following are negative externalities in production except

Secondhand smoke in a restaurant

The behavior of profit-maximizing producers is guided by

Self-interest.

Requiring that a firm engage in pollution abatement will likely do all of the following except

Shift the firm's ATC curve downward. Pollution abatement will increase the costs to the firm, shifting the MC curve upward (supply curve leftward), resulting in lower output, higher prices, and lower profits. The ATC will shift up, not down.

A completely successful emission charge would

Shift the private MC curve to the same position as the social MC curve.

External costs are the difference between

Social costs and private costs.

In Figure 28.1, if the rate of output is 320 units,

Social costs exceed private costs

In order to maximize social welfare, a firm's production of a good should occur at the output where

Social marginal cost equals social marginal benefit

Which of the following is assumed to be the most important motivation for producers?

The desire to maximize economic profits The basic incentive for producing goods and services is the expectation of profit.

External costs are

The difference between social and private costs

Social costs are

The total resource costs of an economic activity.

When private and social costs are equal,

There are no external costs.

When external costs are present,

There is market failure

According to the text, which of the following is a form of water pollution?

Thermal pollution. Both organic and thermal pollution are types of water pollution

Which of the following is not a form of air pollution?

Thermal pollution. Smog, acid rain, and the greenhouse effect are all forms of air pollution.

If a manufacturer does not have to pay for its contribution to pollution, it will produce

Too much output from a social viewpoint

Emission charges, user fees, and pollution fines increase the _______ of polluting

opportunity cost

The marginal cost of reducing pollution

Rises as the environment gets cleaner

If the social costs of an economic activity are $200 and the private costs are $200, then the external costs of the activity are ____, and market failure _______.

$0; does not occur

If the social costs of an economic activity are $120 and the private costs are $75, then the external costs of the activity are ____, and market failure _______.

$45; occurs

Suppose the government allows these two firms to trade pollution permits. The total cost to reduce emissions by a total of two tons could be as low as

$480

Suppose the government commands each firm to reduce its emissions by one ton each. What is the total cost?

$600

A power plant in Illinois produces electricity by burning coal. This results in acid rain that kills trees and wildlife in New York. This is an example of

An external cost.

The costs of pollution control will

Be distributed between the producer and the consumer

Suppose the government allows these two firms to trade pollution permits. What would be the price of a permit to emit the second ton of pollutants?

Between $280 and $400

When the government requires a firm to pay an emission charge in proportion to its pollution,

Both average total costs and marginal costs rise.

According to the text, which of the following is the prime cause of the greenhouse effect?

Carbon dioxide The prime villain in the greenhouse effect is carbon dioxide (CO2). However, destruction of the rain forests also contributes to the greenhouse effect

Pollution control efforts

Change what and how much is produced.

The Clean Air Acts of 1970 and 1990 reduced pollution through

Command-and-control regulatory standards.

Which of the following is an example of bypassing the market through regulation to achieve environmental protection?

Command-and-control standards

If the government imposed a green tax on gasoline, the amount of air pollution should

Decrease as people switch to more fuel-efficient cars.

A five-cent container deposit on bottles

Decreases the price of recycled materials and thus encourages recycling.

Assigning values to environmental damage is relatively

Difficult because many items have intangible benefits and thus do not have a market price. It may be easy to assign values to environmental damage in some cases, such as the increases in cancer and heart attacks, the rate at which buildings decay or forests and lakes die, and so on. However, it is much more difficult to assign value to intangible losses like polluted vistas, endangered wildlife, and lost recreation opportunities

By altering market incentives, the government tries to shift

External costs to the producer

By implementing user fees, the government tries to shift

External costs to users

The marginal benefit of reducing pollution

Falls as the environment gets cleaner

All of the following can be costs of environmental cleanup except

Fewer hospital visits

For which firm are all costs internalized in Table 28.2?

Firm A

60. Firm A finds it very expensive to reduce its sulfur dioxide emissions, while Firm B finds it very cheap to reduce its sulfur dioxide emissions. If a program of tradable pollution permits was enacted, we would most likely see

Firm B sell its permit to pollute to firm A.

In Table 28.2, which firm has the greatest difference between social and private costs?

Firm C. External costs are the difference between social costs and private costs. Firm C has external costs of $175, whereas Firm A's external cost is $0, Firm B's is $100, and Firm D's is $50.

In Table 28.2, which firm has the lowest absolute level of costs borne directly by the producer?

Firm C. Firm C has the lowest private costs and therefore has the lowest absolute level of costs borne by the producer.

CO2 emissions are a

Global externality

Government intervention that fails to improve economic outcomes is known as

Government failure

When environmental regulations continue long after they are obsolete, there is

Government failure.

Producers can be encouraged to internalize external costs by

Imposing pollution fines or higher user fees

Refer to Figure 28.2. Assume this firm initially has marginal costs equal to Private MC1 and is polluting. If the government decides to use emission charges to reduce pollution, the firm's MC curve will shift to

MC3 and the rate of output will decrease

Refer to Figure 28.2. If there were no emissions fees on a firm, its marginal cost curve would be

MC3.

If the government imposed a green tax on gasoline, ceteris paribus, the price of gasoline should

Increase

In Figure 28.1, emission fees will

Increase the marginal cost of production

An emission charge

Increases private marginal cost and reduces output

A five-cent container deposit on bottles

Increases the incentive to recycle.

The Environmental Protection Agency estimates that the total cost of pollution to society

Is $50 billion a year. The EPA attempts to measure the total societal costs of pollution to our health, the impact on buildings and equipment, and our natural resources. According to these valuation efforts, the annual cost of pollution is $50 billion a year

A market for power plant pollution rights will

Lower pollution control costs

A chemical-producing firm is located just upstream from an electric power plant. Instead of the more expensive procedure of burying its wastes, the chemical-producing firm begins dumping its waste into the stream. This causes increased variable costs for the power plant, which uses water from the stream to cool its turbines. From society's viewpoint, the chemical producer's pollution causes an

Overproduction of chemicals and an underproduction of electric power.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 reduced pollution through

Pollution fines.

A polluting company may be able to purchase the right to pollute through

Pollution permits

Refer to Figure 28.2. If this firm is producing a product that does not generate any externalities, the allocatively efficient output would occur where

Price = MC1.

Which of the following is not the case when social costs are greater than private costs?

Resources are allocated efficiently.

External costs occur because

Private costs do not reflect the full costs to society.

From an economic standpoint, the pursuit of a zero-pollution environment

Probably not in society's interest because of the high opportunity costs Economic activity creates pollution, so a world without pollution would be one with little or no economic activity.

Laws requiring the sorting and recycling of trash are an example of

Process regulation

The market will overproduce goods that have external costs because

Producers do not take into account those external costs

Tradable pollution permits, when compared to command-and-control options, tend to

Provide the same amount of pollution abatement at a lower cost.

Excessive process regulation may

Raise the costs of environmental cleanup

The primary purpose of tradable pollution permits is to

Reduce the cost of pollution control.

Which of the following is not a market incentive to discourage pollution?

Regulatory intervention

Thermal pollution is brought about by the discharge of

Steam or heated water. Thermal pollution is an increase in the temperature of waterways brought about by the discharge of steam or heated water.

A chemical-producing firm is located just upstream from an electric power plant. Instead of the more expensive procedure of burying its wastes, the chemical-producing firm begins dumping its waste into the stream. This causes increased variable costs for the power plant, which uses water from the stream to cool its turbines. The chemical producer's dumping of waste into the stream causes

The MC of the chemical firm to shift downward and the MC of the power company to shift upward.

In cost-benefit analysis, the government should intervene as long as

The improvement in the environment exceeds the costs

The optimal rate of pollution occurs where

The marginal benefit equals the marginal cost of pollution abatement.

The costs of environmental protection can be measured by

The opportunity cost of resources used to protect the environment

Many economists would argue that

The optimal amount of pollution is greater than zero

Suppose the government allows these two firms to trade pollution permits. The most efficient transaction would result in

The paper plant reducing its emissions

The greenhouse effect is largely caused by

The release of carbon dioxide into the atmosphere.