Exam 13: The Environment, Health, and Safety

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the regulators chose the permit policy instead of the tax policy. What might explain that decision?

Relative to when a patient has first-dollar medical insurance, the loss in total economic surplus would be smaller if:

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. A B C D E Process (smoke/day) (4 tons/day) (3 tons/day) (2 tons/day) (1 tons/day) Cost to Industrio ( \/ day) \ 350 \ 400 \ 500 \ 700 \ 1,000 Cost to Capitalista ( \/ day) \ 225 \ 250 \ 290 \ 400 \6 00 Given that both firms are currently using process A, if the government decided to auction pollution permits, it would need to sell _____ permits in order to reduce pollution by 25 percent.

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. If Luke had first-dollar medical insurance, then he would choose to have _____ check-ups a year.

When Cody went to the physician with a sore elbow, after hearing Cody's symptoms and examining the elbow manually, Cody's physician had two options: (1) prescribe an anti-inflammatory drug and advise Cody to abstain from vigorous physical activity for a period; or (2) advise Cody to undergo a magnetic resonance imaging (MRI) exam, a costly diagnostic procedure. Which of the following physicians is more likely to recommend option 1?