Exam 16: External Costs and Environmental Policy

Economically speaking,it would be socially optimal to chose the level of pollution where the marginal abatement cost is considerably less than the marginal benefit.

Recall the Application about how the price of pollution permits is determined to answer the following question(s). -Recall the Application of how the European Union has a cap-and-trade system for CO₂ allowances.The demand of allowances is determined by different factors such as level of economic activity,fuel prices,and the weather.

A market for pollution permits can efficiently allocate the right to pollute.

Which of the following would be classified as an external cost?

What role can the government play in correcting for external costs?

The automobile is the biggest source of smog-causing pollutants.

In most cases,pollution taxes are more efficient than command-and-control policies at achieving a desired reduction in the level of pollution because

One advantage of command-and-control policy is its power to reduce the prices of the goods produced by polluting firms.

To internalize the external costs from traffic congestion,policymakers could

If,while producing goods and services,a factory is producing pollution and not incurring the cost of this pollution,then a(n)________ exists.

A tax or charge equal to the external cost per unit of pollution is called abatement.

What is an external cost?

Comment on the following statement: "When an external cost is present and a firm does not factor this cost into its decisions,the firm is likely to produce a level of output that is lower than the efficient level."

Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.The marginal cost of reducing waste

The least costly method for reducing pollution would be to have all firms lower their levels of emissions by the same amount.

When will firms produce an output level that is above the socially efficient level?

The primary source of smog-causing pollutants is

A tax on the likelihood of being in a collision will help internalize the external costs of collisions.

Comment on the following statement: "Taxes on pollution are typically used to eliminate the pollution generated."

Tradable pollution permits