Econ CH 16

According to many economists, the government should: a. use its policies to achieve the least-cost reduction of carbon emissions. b. reduce carbon emissions whenever the marginal cost exceeds a predetermined level set by the courts. c. reduce the level of carbon emissions as far as possible. d. set policy to achieve the efficient level of pollution by reducing the costs of pollution, which will always increase the benefits to society.

a

Both emissions taxes and tradable emissions permits: a. are efficient cost-minimizing methods of pollution reduction. b. are usually less effective than environmental standards. c. work only if they are coupled with environmental standards. d. encourage more pollution.

a

Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient. a. compete with b. exceed c. are equal to d. are less than

b

An externality is said to be internalized: a. when individuals successfully petition the government to ban or restrict activities that generate negative externalities. b. when individuals take external costs and benefits into account in their decision making. c. when the Coase theorem is irrelevant or cannot be applied. d. when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.

b

The marginal social benefit of pollution: a. is equal to the marginal social cost of pollution, since benefits to producers are equal to costs to consumers. b. is easy to estimate, since polluters are required to file this information in their tax returns. c. can be measured as the additional gain to society from one additional unit of pollution. d. is zero, since pollution is not beneficial.

c

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to buy and sell the rights to this total discharge level with other cities. This is an: a. emissions tax. b. Pigouvian tax. c. environmental standard. d. tradable emissions permit.

d

If the marginal social benefit received from pollution is equal to its marginal social cost: a. society's well-being can be improved if the quantity of pollution increases. b. the market is producing too much pollution. c. society's well-being can be improved if the quantity of pollution decreases. d. society has achieved its socially optimal level of pollution.

d

Pollution has _____ and _____. a. no benefits; only costs b. no opposition; only advocates c. short-term effects; very little long-term effect d. benefits; costs

d

Positive externalities are: a. likely to be solved with the use of a Pigouvian tax. b. result from greater than optimal production of a good. c. similar to negative externalities in their ease of measuring marginal benefits. d. difficult to measure, since marginal social benefits are hard to observe.

d

The economically efficient level of an externality is zero. False True

false

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account. True False

true

If externalities are fully internalized, an outcome is efficient even without government intervention. False True

true

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution. False True

true

Both emissions taxes and tradable emissions permits: a. are efficient cost-minimizing methods of pollution reduction. b. work only if they are coupled with environmental standards. c. encourage more pollution. d. are usually less effective than environmental standards.

a

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention one would find: a. too few doses of flu vaccine being produced, since external benefits would not be considered. b. a shortage of doses of flu vaccine, because their marginal social benefit is overestimated. c. the optimal amount of doses of flu vaccines being produced, since external benefits would not be considered. d. too many doses of flu vaccine being produced, since external benefits would not be considered.

a

If an emissions tax is too low: a. there will be too much pollution. b. there could be either too much or too little pollution. c. the marginal social cost of pollution will be less than the marginal social benefit of pollution. d. there will be too little pollution.

a

Markets for the right to pollute are: a. established by government when it issues tradable pollution permits. b. a means by which more pollution is encouraged. c. likely to result in fewer incentives to develop and implement technology that reduces pollution. d. established by individual firms when they reduce emissions.

a

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would: a. increase the supply of milk in Wisconsin. b. reduce the supply of milk in Wisconsin. c. increase the level of emissions. d. encourage the dairy farmers to lower prices.

b

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax at $500. At the equilibrium with the $500 tax: a. the marginal social benefit of pollution will be less than $500. b. there will be too much pollution. c. the marginal social benefit of pollution will be more than $500. d. the marginal social cost of pollution will be less than $500.

b

The marginal social cost of pollution emissions _____ as the quantity of pollution emissions _____. a. remains constant; decreases b. increases; increases c. decreases; increases d. increases; decreases

b

Which of the following is usually associated with a positive externality? a. smoking cigarettes b. innovation in the semiconductor industry c. listening to a new CD with earbuds d. an indoor classical music concert with tickets that cost $50

b

If the number of available tradable emissions permits increases, the equilibrium price of the permits _____ and the equilibrium quantity _____. a. increases; does not change b. increases; increases c. decreases; increases d. decreases; does not change

c

If the number of available tradable emissions permits is decreased, the equilibrium price of the permits _____ and the equilibrium quantity of emissions _____. a. increases; increases b. decreases; decreases c. increases; decreases d. decreases; increases

c

Whenever human activity generates a concentration of a substance in the environment sufficient to cause harm to living things, it is called: a. a result of human greed. b. an external shock. c. a free good. d. pollution.

d

Which of the following best describes a negative externality? a. Your neighbor loves to bake bread and always brings you a loaf fresh and hot from the oven. b. Your neighbor has invested in beautiful landscaping, increasing the value of all of the houses on the block. c. Your neighbor has a pool and has given you an open invitation to come over and swim. d. Your neighbor has an ornamental pond that breeds mosquitoes.

d

Which of the following is an environmental policy based on tradable pollution permits? a. paying automobile drivers $0.10 for each 10% reduction in automobile emissions b. ignoring pollution and letting private markets operate without government interference c. a charge of $0.10 to automobile drivers for a given level of emitted emissions d. allowing automobile drivers to buy and sell the right to a certain level of automobile emissions

d

Pigouvian taxes: a. are designed to reduce external costs. b. tax the profits of polluting firms. c. are tradable emissions permits. d. are essentially the same as emissions standards.

a

Suppose each person in a community had to pay for his or her own education from kindergarten through high school. One would expect that: a. less education would be acquired, since society has not considered the positive external benefits of education. b. a Pigouvian tax would ensure the optimal amount of education. c. more education would be acquired, since society has not considered the positive external benefits of education. d. the optimal amount of education would be acquired by community members, since they each paid for the amount of education they wanted.

a

The marginal benefit of pollution emissions _____ as the quantity of pollution emissions _____. a. decreases; increases b. increases; increases c. remains unchanged; goes up or down d. decreases; decreases

a

A market economy will produce _____ without any government regulation. a. the socially optimal amount of pollution b. too little pollution c. too much pollution d. the amount of pollution that maximizes total surplus

c

Which of the following statements is CORRECT? A. An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax equalizes the marginal benefit of pollution from all sources. B. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. C. It is easy to set emissions taxes at the "correct" level, since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known. D. An environmental standard is a more efficient way to reduce pollution than an emissions tax, because an environmental standard can be structured to equalize the reduction in pollution from all sources.

a

Firm A and firm B both produce a good whose manufacture causes pollution, but the firms differ in their marginal benefit from pollution. In this case, an emissions standard would: a. lead to an unequal reduction in pollution for both firms. b. not be efficient, since it does not take into account differences in marginal benefits. c. reduce pollution in the most effective manner. d. be preferred to an emissions tax, since it takes into account differences in marginal benefits.

b

If the marginal social benefit received from pollution is greater than its marginal social cost in a market: a. firms in the market produce the socially optimal level of pollution. b. firms in the market produce too little pollution. c. firms in the market produce too much pollution. d. society's well-being can be improved if the quantity of pollution decreases.

b

A Pigouvian subsidy is: a. designed to discourage activities generating externalities. b. appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level. c. designed to encourage activities generating external benefits. d. appropriate when the marginal social cost curve is above the marginal cost of production curve.

c

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n): a. specific tax. b. external benefit. c. external cost. d. quasi-public good.

c

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case: a. there is an external benefit to society from copper production. b. too little of society's resources are being used to produce copper. c. too much of society's resources are being used to produce copper. d. the optimal amount of society's resources is being used to produce copper.

c

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

c

An emissions tax will: a. ensure that the marginal benefit of pollution is equal for all sources of pollution. b. cause all polluters to reduce emissions by the same amount. c. set standards to which all producers must adhere regardless of their production costs. d. increase pollution, but not in the most efficient cost-saving way.

c

Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT: a. provide for any means of enforcement. b. internalize the externality. c. allow reductions in pollution to be achieved at minimum cost. d. reduce pollution enough.

c

If external costs exist, the competitive free market: a. allocates resources efficiently. b. automatically corrects an overallocation of resources. c. allocates resources inefficiently. d. automatically corrects an underallocation of resources.

c

The efficient rate of emissions occurs when: a. there is absolutely no damage done to a pristine environment. b. the marginal social benefits of pollution exceed the marginal social costs of pollution. c. the change in social benefits and the change in social costs due to an additional unit of emissions are equal. d. government forbids all pollution no matter what the cost.

c

Which of the following best describes tradable emissions permits? a. tax system for internalizing emission costs to the market b. subsidy system for encouraging production of goods with positive externalities c. licenses that can be bought and sold and that enable the holder to pollute up to a specified amount during a given period d. system of voluntary negotiations between polluters and damaged parties

c

Which of the following is a negative externality? a. unemployment in the steel industry caused by low prices of imported (external) steel b. the increased risk of a traffic accident to an individual who uses a cell phone while driving c. the risks to nonsmokers from second-hand smoke d. high prices for necessities such as drinking water in the aftermath of a natural disaster

c

Which of the following is a positive externality? a. Sam dug a pond so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood. b. Sam has dozens of cats, and they come into your yard to hunt the birds that come to your birdbath. c. Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood. d. Liquid waste from Sam's chicken farm flows into a neighbor's well water.

c

Which of the following is an environmental policy based on tradable emission permits? a. a charge to companies of $1 for every 100 units of pollutants emitted b. paying companies $1 for each 10% reduction in emissions c. allowing companies to buy and sell the right to a certain level of emissions d. ignoring pollution and letting private markets operate without government interference

c

Which of the following is an environmental standard? a. tradable pollution permits b. taxes on the level of pollution c. legal limits on sulfur dioxide emissions d. production subsidies

c

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic beauty of the garden. An appropriate government policy yielding the efficient outcome would be a: a. system of rose production permits. b. reduction in transaction costs. c. Pigouvian tax. d. Pigouvian subsidy.

d

The efficient level of pollution is the quantity at which: a. the marginal social benefit of an additional unit of pollution is greater than the marginal social cost of the additional unit. b. its total benefits exceed its total costs to society by the greatest possible amount. c. the marginal social benefit of an additional unit of pollution is less than the marginal social cost of the additional unit. d. its total benefits to society equal its total costs to society.

d

The marginal social benefit received from pollution is less than its marginal social cost in the market for highly polished glass. In this situation: a. firms in the market produce too little pollution. b. society's well-being cannot be improved by changing the quantity of pollution. c. firms in the market produce the socially optimal level of pollution. d. firms in the market produce too much pollution.

d

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n): a. emissions tax. b. Pigouvian tax. c. tradable emissions permit. d. environmental standard.

d

Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is: a. an emissions tax. b. the Coase theorem. c. a tradable emissions permit. d. an environmental standard.

d

Which of the following suggests that private markets can be effective in dealing with external costs and benefits? a. external technology policy b. the Coase theorem c. the law of diminishing returns d. the "invisible hand"

b

When individuals take external costs and benefits into account: a. they internalize the externality. b. the market will not reach an efficient solution. c. there are no external costs. d. the government should intervene in the market.

a

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive externality to the community, the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity. a. provide a subsidy; greater b. provide a subsidy; lower c. impose a tax; lower d. impose a tax; greater

b

The Coase theorem states that in the presence of externalities, a market economy will: a. never reach an efficient solution. b. reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined. c. always reach an efficient solution. d. reach an efficient solution only in the case of government regulation.

b

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low and property rights are well-defined is known as: a. a Pigouvian tax. b. the Coase theorem. c. a technology spillover. d. a network externality.

b

The marginal social benefit of pollution: a. is easy to estimate, since polluters are required to file this information in their tax returns. b. can be measured as the additional gain to society from one additional unit of pollution. c. is equal to the marginal social cost of pollution, since benefits to producers are equal to costs to consumers. d. is zero, since pollution is not beneficial.

b

The socially optimal quantity of pollution is: a. the quantity whose marginal social cost is equal to zero. b. the quantity whose marginal social cost is equal to the marginal social benefit. c. zero. d. the quantity whose marginal social benefit is equal to zero.

b

To encourage consumption of a good that generates positive externalities, the best option for policymakers would be to: a. do nothing, since the market will achieve the socially optimal level without government intervention. b. provide a subsidy per unit of the good consumed to achieve the socially optimal level. c. impose a tax on the amount consumed to achieve the socially optimal level. d. mandate consumption of the good at the socially optimal level.

b

Tony has a cell phone, and his service provider is Verizon. When he calls his wife, Meleah, another Verizon customer, he does not have to pay for those minutes. The more Verizon customers there are in the market, the more benefit Tony receives. This is: a. a Pigouvian subsidy. b. a network externality. c. a technology spillover. d. the Coase theorem.

b

Which of the following is a negative externality? a. high prices for necessities such as drinking water in the aftermath of a natural disaster b. the risks to nonsmokers from second-hand smoke c. the increased risk of a traffic accident to an individual who uses a cell phone while driving d. unemployment in the steel industry caused by low prices of imported (external) steel

b

Which of the following is an environmental policy based on tradable pollution permits? a. paying automobile drivers $0.10 for each 10% reduction in automobile emissions b. allowing automobile drivers to buy and sell the right to a certain level of automobile emissions c. ignoring pollution and letting private markets operate without government interference d. a charge of $0.10 to automobile drivers for a given level of emitted emissions

b

Which of the following suggests that private markets can be effective in dealing with external costs and benefits? a. the law of diminishing returns b. the Coase theorem c. external technology policy d. the "invisible hand"

b

With tradable emissions permits, if the demand for goods that produce emissions shifts to the left, the equilibrium price of permits _____ and the equilibrium quantity _____. a. increases; stays the same b. falls; stays the same c. falls; increases d. increases; increases

b

With tradable emissions permits, the main problem is to determine the _____, while with emissions taxes the main problem is to determine the _____. a. optimal price of the permits; optimal level of pollution b. optimal quantity of pollution; optimal tax rate c. optimal quantity of pollution; marginal social benefit of pollution d. marginal social cost of pollution; optimal tax rate

b

Network externalities are often: a. not likely to move toward market domination. b. separate from positive feedback. c. a reason for natural monopolies. d. less likely to occur in the communications or technology industries than in other industries.

c

Suppose the federal government determines the total level of municipal sewage that can be discharged by cities along a river. If the cities are able to buy and sell rights to the total discharge level among themselves, then the government's environmental policy includes: a. command and control. b. emissions taxes. c. tradable pollution permits. d. regulations.

c

Taxes are a more effective method of controlling pollution than environmental standards because: a. standards require less information. b. standards allow greater flexibility. c. taxes encourage reducing pollution at the lowest possible cost. d. standards never require the efficient level of output.

c

With tradable emissions permits, the price of the permit is determined by: a. the government. b. the World Trade Organization. c. the supply of and demand for permits. d. environmental protection organizations.

c

With use of _____ to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters. a. an emissions tax b. an environmental standard c. an emissions tax or a tradable emissions permit d. a tradable emissions permit

c

The marginal social cost of a unit of pollution: a. is often overestimated. b. remains constant as more of a good is produced. c. is easy to calculate, since pollution produces costs. d. is the additional cost imposed on society by that unit.

d