Deck 17: The Economics of Environmental Protection

Question 1

A system of tradable pollution permits is cost- effective because

A) firms with a marginal cost of abatement lower than the permit price will buy permits and abate less.
B) firms will choose their abatement so that their marginal cost of abatement equals the price of a permit, which is the same for all firms.
C) firms facing a low marginal cost of abatement will not abate at all.
D) firms facing a high marginal cost of abatement will not abate at all.
E) firms facing a marginal cost of abatement lower than the permit price will not abate at all.

Answer 1

B

Question 2

The marginal benefit of reducing pollution in some industry may be expected to

A) fall as the amount of pollution abatement undertaken rises.
B) rise as the level of pollution gets closer to zero.
C) remain constant for all levels of pollution control.
D) be always greater than the marginal cost of pollution reduction.
E) exceed the marginal cost of pollution reduction for all positive levels of pollution.

Answer 2

A

Question 3

The major elements of the Kyoto Protocol were 1) an aggregate emissions- reductions target of 5 percent below the 1990 level of emissions by 2012;
2) clear policy guidelines for emissions reductions for each signatory country;
3) acceptance of a system of internationally tradable pollution permits.

A) 1 and 3
B) 3 only
C) 2 only
D) 1 only
E) 1 and 2

Answer 3

A

Question 4

The table below shows the marginal benefit and marginal cost of pollution abatement. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Units of } \\\text { Pollution } \\\text { Abatement }\end{array} & \text { MB } &\text { MC } \\\hline 1 & 120 & 5 \\\hline 2 & 115 & 15 \\\hline 3 & 105 & 30 \\\hline 4 & 90 & 50 \\\hline 5 & 70 & 70 \\\hline 6 & 45 & 95 \\\hline 7 & 15 & 125 \\\hline 8 & 0 & 155 \\\hline\end{array}\\\text { TABLE 17- } 1\end{array}$$

-Refer to Table 17- 1. Suppose a public authority has the mandate to maximize social welfare by choosing the appropriate amount of pollution abatement. The optimal amount of pollution abatement is _ units and implies a amount of pollution remaining.

A) 8; 0
B) 5; negative
C) 120; negative
D) 5; positive
E) 70; positive

Question 5

The optimal amount of pollution abatement is generally less than 100 percent. Complete (100 percent ) abatement would be optimal if

A) the marginal cost of abatement is always zero.
B) the marginal cost of abatement exceeds the marginal benefit of abatement at all levels of abatement.
C) the marginal benefit of abatement is zero.
D) the marginal cost of abatement is positive but less than the marginal benefit of abatement.
E) none of the above -- we cannot even imagine a situation in which complete abatement would be optimal.

Question 6

Economists generally view pollution as

A) a positive externality.
B) a negative externality.
C) a negative economy.
D) a non- excludable good.
E) a scourge on the earth.

Question 7

The diagram below shows the market for tradable pollution permits. Figure 17- 7
Refer to Figure 17- 7, which depicts the market for tradable pollution permits. If there is an increase in firms' marginal cost of pollution abatement,

A) the price of pollution permits will fall.
B) firms decide to abate more pollution.
C) firms will demand fewer pollution permits.
D) firms will demand more pollution permits.
E) firms require exactly Q* permits.

Question 8

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y. FIGURE 17- 4
Refer to Figure 17- 4. Ignore the horizontal line at t. Suppose the government requires each firm to reduce pollution by the same amount, QR. The result will be

A) fair and just because both firms are facing the same requirements.
B) economically inefficient because Firm Y is then abating pollution at a higher marginal cost than Firm X.
C) economically efficient because the maximum amount of pollution will be abated.
D) economically efficient because even though their marginal costs of abatement differ, the marginal cost for the last unit of abatement is equal.
E) economically inefficient because Firm X is not producing as much pollution as Firm Y and therefore should not be faced with the same requirements.

Question 9

In a competitive market for tradable pollution permits, the quantity of permits (for a given amount of pollution) is set by and the equilibrium price is determined by _.

A) government policy; market forces
B) government policy; government policy
C) market forces; government policy
D) market forces; market forces
E) government policy; the average cost of pollution abatement

Question 10

A pollution- control policy that, in principle, can perfectly internalize pollution externalities is

A) an emissions tax.
B) fines for "over- polluters".
C) emission limits.
D) moral suasion.
E) none of the above can internalize the externality.

Question 11

If a per- unit tax on a firm's output makes the marginal private cost of production equal to the marginal social cost, we can then say that

A) the firm will make losses as its costs have increased.
B) the firm will cease to damage the environment.
C) the firm will be forced by the extra cost burden to leave the industry.
D) the firm will not make any changes to its output decision.
E) the externality has been fully internalized for that firm.

Question 12

Consider a coal- fired electric- power plant that is operating under a system of tradable pollution permits. If its marginal cost of pollution abatement is $100 per unit and the price of the permit is
$150 per unit, this firm will

A) sell permits and abate more pollution.
B) not buy any permits, since that would push up its costs.
C) buy permits and abate more pollution.
D) buy permits and abate less pollution.
E) not abate at all.

Question 13

One of the most promising strategies for efficiently addressing the market failure that leads to environmental pollution is

A) to develop "smarter" direct pollution controls.
B) the introduction by government of tradable pollution permits.
C) forcing polluters to clean up polluted water, earth, and air.
D) the elimination of government involvement.
E) government legislation banning pollution.

Question 14

The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2. FIGURE 17- 5
Refer to Figure 17- 5. If the government requires each firm to abate Q3 units of pollution, the social costs of this abatement

A) could be reduced further if Firm 2 increased abatement and Firm 1 reduced its abatement by the same amount.
B) could be reduced further if each firm was required to abate more.
C) could be reduced further if each firm was allowed to pollute more.
D) would be minimized.
E) could be reduced further if Firm 1 increased its abatement and Firm 2 reduced its abatement by the same amount.

Question 15

The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating Q0 units of pollution. FIGURE 17- 6
Refer to Figure 17- 6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. Firm B will buy permits from Firm A because

A) its total cost of abating less (areas 1+2+3) exceeds the cost of buying the permits (areas 2+3).
B) Firm B can buy the permits at a lower price than Firm A.
C) its total savings from abating less (areas 1+2+3) exceed the cost of buying the permits (areas 2+3).
D) Firm B has lower costs of pollution abatement than Firm A.
E) its total savings from abating less (areas 1+2+3) exceed the total costs of Firm A abating more (area 6).

Question 16

When a farmer in Manitoba produces fertilizer run- off that pollutes the local water system,

A) the amount of farm output produced will be less than the efficient level.
B) the farm should stop producing agricultural products altogether.
C) the amount of farm output will not be profitable.
D) the amount of farm output produced will not be cost- effective.
E) the amount of farm output produced will exceed the efficient level.

Question 17

The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating Q0 units of pollution. FIGURE 17- 6
Refer to Figure 17- 6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p×. Firm A will sell permits to Firm B because

A) Firm B has lower costs of pollution abatement than Firm A.
B) the revenue Firm A earns from selling permits (areas 5 + 6) is greater than the cost it incurs from abating more pollution (area 6).
C) Firm A can buy the permits at a lower price than Firm B.
D) Firm A's total cost of abating more pollution (area 6) is less than the revenue it earns from selling the permits (areas 4 + 5).
E) Firm A's total cost of abating more pollution (areas 5 + 6) is less than the revenue it earns from selling the permits (areas 4 + 5 + 6).

Question 18

Suppose a local meat packing company dumps waste into a river, causing a firm located downstream that uses the water to incur costs to restore the water quality. An efficient solution to this problem might involve:
1) forcing the meat- packing company to relocate near a different river;
2) forcing the meat- packing company to buy the downstream firm;
3) permitting the downstream firm to charge the meat- packing company.

A) 1 only
B) 2 only
C) 3 only
D) 2 or 3 only
E) 1 or 3 only

Question 19

If a negative externality is associated with the production of some good, then

A) marginal social cost minus marginal private cost is positive.
B) too little of the good is being produced by the firm.
C) the marginal social cost is less than the marginal social benefit.
D) the price is equal to firms' marginal private cost.
E) marginal social cost minus marginal private cost is negative.

Question 20

The marginal benefit of reducing pollution and the marginal cost of reducing pollution are given by the following equations: MB = - 2U2 + 18, and MC = 2U2 + 2, where U is the number of units of pollution abatement. What is the level of pollution abatement after which there is no benefit whatsoever in reducing pollution?

A) 0
B) 1
C) 2
D) 3
E) 4

Question 21

A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 - 0.5Q. The marginal external cost is throughout the output range.

A) increasing
B) zero
C) decreasing
D) constant
E) negative

Question 22

Federal regulation aimed at reducing greenhouse- gas emissions by setting some maximum level of emissions from each firm

A) will usually not produce the desired reduction in emissions at the lowest possible cost.
B) will achieve the largest but not the most efficient reduction in emissions.
C) will achieve the least reduction in emissions but be the most efficient.
D) is the best approach because the costs of reducing emissions are different for each firm.
E) is the best approach because firms will quickly reduce air pollution.

Question 23

The diagram below show the private and social marginal costs and the social marginal benefits of producing disposable diapers. FIGURE 17- 2
Refer to Figure 17- 2. The allocatively efficient level of production and use of disposable diapers is

A) Q0, because that is where MCS equals MBS.
B) Q0, because that is where MCS exceeds MCP.
C) Q2, because that is where the externality is internalized.
D) Q1, because that is where MCP equals MBS.
E) Q1, because that is where MCS equals MBS.

Question 24

The socially optimal level of output is the quantity where all marginal costs of production, private plus external, equal the

A) average benefit to society.
B) total benefit to society.
C) marginal cost of production.
D) marginal benefit to society.
E) marginal benefit to the firm.

Question 25

Consider the following equation: $$\mathrm { GHG } = \frac { \mathrm { GHG } } { \text { Energy } } \times \frac { \text { Energy } } { \mathrm { GDP } } \times \mathrm { GDP } ,$$
Where GHG = world annual emissions of greenhouse gases Energy = world annual amount of energy consumed GDP = world's annual gross domestic product
Suppose GHG emissions increased by 10 percent between 2005 and 2010, a period when GDP increased by 5 percent and Energy/GDP was constant. We can conclude that GHG/Energy over the same period

A) increased by 5 percent.
B) was unchanged.
C) decreased by 10 percent.
D) increased by 10 percent.
E) decreased by 5 percent.

Question 26

When an external cost associated with the production of some good has been internalized, it means that

A) the consumer must bear the net social benefits imposed by the producer.
B) the producer must bear the external costs imposed by production.
C) the private cost of production is borne by the producer.
D) the firm is ignoring social costs.
E) the opportunity cost of production is passed on to the consumer.

Question 27

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y. FIGURE 17- 4
Refer to Figure 17- 4. Firms X and Y have an emissions tax of $t imposed on each unit of pollution they produce. If Firm X chooses to abate QX units of pollution, the total cost of its abatement is

A) tax amount t multiplied by the level of pollution abatement, QX.
B) area beneath the marginal cost of pollution abatement curve.
C) area below the horizontal line at t and above the MC of pollution abatement curve.
D) area beneath the marginal cost of pollution abatement curve up to QX.
E) tax amount t multiplied by the maximum possible level of pollution abatement.

Question 28

When designing a policy to reduce polluting emissions, policymakers are unlikely to know with certainty what the marginal cost of abatement is for each firm. If an emissions tax ($t per unit of emissions) is imposed, then policymakers

A) know the per- unit cost imposed on firms but do not know what the reduction in emissions will be.
B) are uncertain about both the amount of emission reduction and the cost.
C) know what the reduction in emissions will be but do not know at what cost.
D) know with certainty what their tax revenues will be from the emissions tax.
E) know with certainty what the reduction in emissions will be and at what cost.

Question 29

The diagram below show the private and social marginal costs and the social marginal benefits of producing disposable diapers. FIGURE 17- 2
Refer to Figure 17- 2. The net social benefit derived from the production and use of disposable diapers is

A) zero at Q0, because that is where MCS equals MBS.
B) at a maximum at Q1, because that is where MCS equals MBS.
C) at a minimum at Q0, because MCS exceeds MCP.
D) zero at Q2, because that is where the externality is internalized.
E) at a maximum at Q0, because that is where MCS equals MBS.

Question 30

The figure below shows the demand and supply curves for pollution abatement. FIGURE 17- 3
Refer to Figure 17- 3. The socially optimal amount of pollution is

A) Qt - Q*.
B) Q* + Qt.
C) 0.
D) Q*.
E) Qt.

Question 31

The main advantage of using market- based schemes for reducing pollution is that they

A) minimize the difference between total cost and total benefit.
B) maximize the difference between marginal cost and marginal benefit.
C) lead to a more efficient use of scarce resources.
D) improve the moral fibre of producers and consumers.
E) lead to greater fairness in the distribution of resources.

Question 32

The diagram below shows the marginal cost of abatement for each of two firms, A and B. Each firm is initially abating Q0 units of pollution. FIGURE 17- 6
Refer to Figure 17- 6. Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*. The effect will be that

A) Firm B will abate less pollution-the amount Q2, and Firm A will abate more pollution-the amount Q1.
B) Firms A and B will each abate Q0 units of pollution.
C) Firms A and B will each abate Q2 units of pollution.
D) there will be no change in the quantity of abatement by each firm.
E) Firm A will abate less pollution-the amount Q2, and Firm B will abate more pollution-the amount Q1.

Question 33

The use of emissions taxes as a method of reducing pollution
1) is more efficient than direct controls;
2) allows firms to select the most efficient abatement techniques;
3) forces firms to internalize the pollution externality.

A) 1 only
B) 1 and 2 only
C) 1 and 3 only
D) 2 and 3 only
E) 1, 2, and 3

Question 34

If the government imposes a tax for each unit of pollution that a firm produces, the firm will

A) ignore the tax and continue to produce the same amount of output.
B) reduce emissions until the marginal cost of any further reduction in pollution is equal to the price of the firm's product.
C) increase output such that the additional revenue can offset this additional tax payment.
D) stop producing altogether.
E) reduce emissions until the marginal cost of any further reduction in pollution is equal to or greater than the tax.

Question 35

The optimal amount of pollution abatement is such that

A) there is no remaining pollution.
B) governments have successful anti- pollution legislation in effect.
C) the marginal private cost of reducing pollution is just equal to the profit of the polluting firms.
D) the marginal social cost of reducing pollution is just equal to the marginal social benefits from doing so.
E) none of the above; there is no optimal amount of pollution abatement .

Question 36

A policy that puts a price on GHG emissions will help to reduce emissions because

A) energy intensity of GDP will increase.
B) it provides incentives for firms and consumers to switch to cleaner energy sources.
C) it will shift firms' marginal cost of abatement curves upward.
D) it will shift firms' marginal cost of abatement curves downward.
E) world energy intensity will increase.

Question 37

Consider the following equation: $$\mathrm { GHG } = \frac { \mathrm { GHG } } { \text { Energy } } \times \frac { \text { Energy } } { \mathrm { GDP } } \times \mathrm { GDP } ,$$
Where GHG = world annual emissions of greenhouse gases Energy = world annual amount of energy consumed GDP = world's annual gross domestic product
The ratio GHG/Energy describes

A) greenhouse gas emissions expressed as a percentage of carbon- based energy consumed.
B) the energy efficiency of greenhouse gas emissions.
C) the units of greenhouse gases emitted per unit of energy consumed.
D) the units of energy consumed per unit of greenhouse gases emitted.
E) the total units of greenhouse gases emitted annually.

Question 38

Global GHG emission reductions are unlikely to be achieved through GDP reductions because

A) the rise in GDP in rich countries will be greater than the reductions in GDP in poor countries.
B) the growth rate of world GDP is negative.
C) the rise in GDP in poor countries will be greater than the reductions in GDP in rich countries.
D) GDP cannot be reduced.
E) ongoing population growth and per capita income growth are likely to drive GDP upward.

Question 39

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good. FIGURE 17- 1
Refer to Figure 17- 1. The price that leads consumers to demand the socially optimal quantity of output is

A) P3.
B) P2.
C) P1.
D) zero.
E) not possible to know from the information given.

Question 40

Direct pollution controls can be criticized from an economic viewpoint as

A) still allowing firms to pollute when a policy of "zero tolerance" is more appropriate.
B) being easy to circumvent.
C) not being efficient in allocating the costs of pollution reduction among various firms and plants.
D) being inequitable in their application.
E) being ultimately unsuccessful in reducing pollution.

Question 41

A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = Z + 2Q, and MB = 35 - 0.5Q. What is the level of Z for which the marginal external cost at the competitive free- market equilibrium is zero?

A) - 15
B) - 10
C) 0
D) 15
E) 25

Question 42

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y. FIGURE 17- 4
Refer to Figure 17- 4. Firms X and Y have an emissions tax of $t imposed on each unit of pollution they produce. Firm X will choose to abate pollution of units and Firm Y will choose to abate pollution of units.

A) QR; QY
B) QX; QR
C) QR; QR
D) 0; 0
E) QX; QY

Question 43

The diagram below shows the market for tradable pollution permits. Figure 17- 7
Refer to Figure 17- 7, which depicts the market for tradable pollution permits. Improvements in firms' abatement technology will be expected to

A) shift the demand curve to the left.
B) shift the supply curve to the right.
C) shift the supply curve to the left.
D) shift the demand curve to the right.
E) not have any impact on the equilibrium.

Question 44

Consider the following equation: $$\mathrm { GHG } = \frac { \mathrm { GHG } } { \text { Energy } } \times \frac { \text { Energy } } { \mathrm { GDP } } \times \mathrm { GDP } ,$$
Where GHG = world annual emissions of greenhouse gases Energy = world annual amount of energy consumed GDP = world's annual gross domestic product
Suppose GHG emissions decreased by 6 percent between 2010 and 2012, a period when GDP increased by 4 percent and Energy/GDP decreased by 2 percent. We can conclude that

A) decreased by 6 percent.
B) remain unchanged.
C) decreased by 4 percent.
D) decreased by 8 percent.
E) increased by 4 percent.

Question 45

The table below shows the marginal benefit and marginal cost of pollution abatement. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Units of } \\\text { Pollution } \\\text { Abatement }\end{array} & \text { MB } &\text { MC } \\\hline 1 & 120 & 5 \\\hline 2 & 115 & 15 \\\hline 3 & 105 & 30 \\\hline 4 & 90 & 50 \\\hline 5 & 70 & 70 \\\hline 6 & 45 & 95 \\\hline 7 & 15 & 125 \\\hline 8 & 0 & 155 \\\hline\end{array}\\\text { TABLE 17- } 1\end{array}$$

-Refer to Table 17- 1. Suppose a public authority has the mandate to maximize social welfare by choosing the appropriate amount of pollution abatement. The total net benefit from the optimal amount of pollution abatement is

A) 0.
B) 120.
C) 155.
D) 275.
E) 330.

Question 46

If emissions permits are traded freely between profit- maximizing firms in the private market,

A) the amount of pollution abatement will be identical to that which the firms would have willingly undertaken on their own.
B) each firm will face identical costs of pollution abatement.
C) there will be more than the optimal amount of pollution.
D) all firms will use identical pollution abatement technologies.
E) marginal abatement costs will be equalized across firms.

Question 47

The social marginal cost of the production of snowmobiles

A) does not include the carbon emissions from snowmobiles.
B) does not include the increased risk of accidents caused by the operation of snowmobiles.
C) is greater than the sum of the private marginal cost and external cost.
D) is less than the marginal external cost of production.
E) includes the noise pollution imposed on those living near snowmobile trails.

Question 48

Between 1990 and 2004, Canada's greenhouse gas emissions by percent.

A) decreased; 1
B) increased; more than 25
C) increased; 6
D) increased; 15
E) decreased; 6

Question 49

Automobile emissions standards are an example of

A) tradable emissions standards.
B) a market- based environmental policy.
C) emissions taxes.
D) market power.
E) direct pollution controls.

Question 50

Consider a coal- fired electric- power plant that is operating under a cap and trade system. If its marginal cost of pollution abatement is $5 per unit and the price of the permit is $3 per unit, this firm will

A) not buy any permits, since that would push up its costs.
B) buy permits and abate less pollution.
C) buy permits and abate more pollution.
D) sell permits and abate more pollution.
E) not abate at all.

Question 51

A downward- sloping marginal benefit curve for pollution abatement means that

A) it is impossible to know the benefits from additional increments of pollution abatement.
B) the marginal cost of pollution reduction will exceed the marginal benefit.
C) the costs of pollution decrease as further amounts are abated.
D) there are decreasing incremental benefits to be realized from additional increments of pollution abatement.
E) society views additional increments of pollution abatement as unnecessary.

Question 52

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good. FIGURE 17- 1
Refer to Figure 17- 1. The socially optimal level of output is

A) Q1.
B) Q3.
C) Q2.
D) zero.
E) none of the above; there is no optimal output level.

Question 53

Consider two firms, A and B, that must engage in pollution abatement. If Firm A has a lower marginal cost of pollution abatement than Firm B, then

A) regardless of costs, it is equitable for both firms to face the same direct controls on their pollution.
B) reallocating some of Firm B's abatement activity to Firm A can keep total abatement constant but reduce the total cost of abatement.
C) reallocating all abatement activity to Firm A will reduce pollution and reduce the total cost of abatement.
D) reallocating some of Firm A's abatement activity to Firm B will keep total abatement constant but will reduce the total cost of abatement.
E) Firm B should lower its costs.

Question 54

The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2. FIGURE 17- 5
Refer to Figure 17- 5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposes an emissions tax of $20 per unit of emissions,

A) Firm 1 will increase abatement beyond Q3 and Firm 2 will abate less than Q3.
B) Firm 1 and Firm 2 will each increase abatement beyond Q3.
C) the level of pollution abatement will be optimal.
D) Firm 1 will abate less than Q3, and Firm 2 will not abate any pollution at all.
E) neither firm will abate any pollution.

Question 55

All of the following are examples of direct pollution controls EXCEPT

A) a monetary fine in some communities for littering.
B) legislation requiring scrubbers on coal- fired power stations.
C) a ban on wood stoves in some communities.
D) auto emissions standards.
E) legislation imposing per- unit taxes on harmful emissions from a pulp and paper plant.

Question 56

A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 - 0.5Q. The allocatively efficient level of output is units.

A) 0
B) 10
C) 15
D) 25
E) 30

Question 57

In 2006, Professor Nicolas Stern of the United Kingdom stated "Climate change is the greatest market failure the world has ever seen." Which of the following statements describes the biggest challenge to efforts to begin correcting this market failure?

A) Policy design must be coordinated among all major governments of the world, as the problem is truly a global one.
B) Each government around the world must choose its own level of emissions.
C) Climate change is too large a problem to be compared to a market failure.
D) We do not have precise estimates of the costs of reducing greenhouse gas emissions.
E) We do not have precise estimates of the costs of increased levels of CO2e in the atmosphere.

Question 58

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y. FIGURE 17- 4
Refer to Figure 17- 4. Ignore the horizontal line at t. If the government wanted to impose an emissions tax, efficiency requires that it

A) impose the same tax on both firms and also fix the amount of pollution abatement at QR for each firm.
B) tax only the low- cost firm (Firm X) and fix the amount of pollution abatement for the high- cost firm (Firm Y).
C) choose a different tax rate for each firm so that each firm abates QR units of pollution.
D) levy a tax at the same rate to both firms.
E) tax only the high- cost firm (Firm Y) and fix the amount of pollution abatement for the low- cost firm (Firm X).

Question 59

Suppose the government imposes an emissions tax of $t on each unit of pollution produced by a firm. Under which of the following circumstances would the tax rate be set too high to achieve allocative efficiency?

A) the firm could not afford to pay the tax
B) the tax rate is less than the marginal external cost of the pollution
C) the tax rate causes the firm's ATC curve to shift up
D) the tax rate is greater than the marginal external cost of the pollution
E) the tax rate is greater than the firm's private marginal cost of production

Question 60

When designing a policy to reduce polluting emissions, policymakers are unlikely to know with certainty what the marginal cost of abatement is for each firm. If policymakers set an emissions cap of X units, and issue tradable permits for this amount, then they

A) know the per- unit cost imposed on firms but do not know what the reduction in emissions will be.
B) are uncertain about both the amount of emission reduction and the cost.
C) know with certainty what the equilibrium permit price will be.
D) know with certainty what the reduction in emissions will be and at what cost.
E) know what the reduction in emissions will be but do not know at what cost.

Question 61

A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 - 0.5Q. The marginal external cost at the competitive free- market equilibrium is

A) 25.
B) 20
C) 15.
D) 10.
E) 5.

Question 62

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good. FIGURE 17- 1
Refer to Figure 17- 1. The price that would occur in a competitive market in the absence of government intervention is

A) P3.
B) P2.
C) P4.
D) P1.
E) not possible to know from the information given.

Question 63

Private and competitive markets could produce efficient levels of pollution if

A) the appropriate tax per unit of pollution were administered and enforced.
B) the producers were made aware of the pollution externality.
C) the worst polluting firms were closed down.
D) left alone by government regulators.
E) regulated by government through direct controls.

Question 64

A potential disadvantage of emissions taxes versus direct pollution controls is that

A) emissions taxes are more expensive to administer.
B) pollution becomes a part of each firm's profit- maximizing calculations, encouraging firms to find more efficient ways to pollute.
C) the authorities might have a better idea of the socially optimal level of pollution than of the optimal tax rate that would achieve it.
D) emissions taxes do not specify how the pollution is to be controlled, which leads to economic inefficiency in the implementation of the pollution restraint.
E) emissions taxes introduce distortions to the price system, whereas direct controls do not.

Question 65

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good. FIGURE 17- 1
Refer to Figure 17- 1. The equilibrium output that would occur in a competitive market in the absence of government intervention is

A) zero.
B) Q3.
C) Q1.
D) Q2.
E) none of the above; there is no equilibrium output level.

Question 66

Consider the following equation: $\mathrm{GHG}=\frac{\text { GHG}}{\text {Energy }}\times \frac{\text {Energy }}{\text {GDP }} \times GDP,$
Where GHG = world annual emissions of greenhouse gases Energy = world annual amount of energy consumed GDP = world's annual gross domestic product
The ratio Energy/GDP describes

A) the amount of energy per unit of GDP required to stabilize greenhouse gas emissions.
B) the energy efficiency of greenhouse gas emissions.
C) the number of units of carbon- based energy produced as a fraction of GDP.
D) the number of units of energy used per dollar of GDP produced.
E) the amount of energy used per unit of output in the energy- intensive sector of the economy.

Question 67

In general, the economist's view on allocating resources to reduce pollution is that

A) government policies to reduce pollution have zero opportunity cost.
B) the reduction of pollution should proceed up to the point where the marginal cost of pollution reduction equals the marginal benefit to society.
C) all forms of water and air pollution should be eliminated.
D) the extent of pollution reduction should be based only on a comparison of total costs and total benefits to the environment.
E) it is not allocatively efficient to reduce pollution.

Question 68

A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 - 0.5Q. The marginal external cost at the allocatively efficient level of output is

A) 0.
B) 5.
C) 10.
D) 15.
E) 20.

Question 69

The diagram below shows the market for tradable pollution permits. Figure 17- 7
Refer to Figure 17- 7, which depicts the market for tradable pollution permits. The equilibrium price p*

A) is not a function of the abatement technology.
B) is always equal to the subsidy provided by the government.
C) equals the average abatement cost for firms.
D) is imposed by the government.
E) equals the marginal abatement cost for each profit- maximizing firm.

Question 70

Two firms, A and B, are legally required to reduce their toxic emissions. If Firm A's marginal cost of abatement is $5 and Firm B's marginal cost of abatement is $5,

A) the socially optimal joint level of abatement is not being achieved.
B) their joint total cost of abatement is at a minimum.
C) Firm B should abate more and Firm A should abate less.
D) their joint total cost of abatement is at a maximum.
E) Firm A should abate more and Firm B should abate less.

Question 71

When comparing a system of emission taxes to a system of tradable pollution permits, the same amount of pollution could be abated in each as long as

A) the marginal cost of abatement was equal across all firms.
B) the cap on emissions was chosen such that the equilibrium price of the permits, p×, could rise over time.
C) the emission tax rate, t, was applied equally to all firms.
D) the marginal benefit of abatement curve was horizontal.
E) the cap on emissions was chosen such that the equilibrium price of the permits, p×, was equal to the emissions tax rate, t.

Question 72

The marginal benefit of reducing pollution and the marginal cost of reducing pollution are given by the following equations: MB = - 2U2 + 18, and MC = 2U2 + 2, where U is the number of units of pollution abatement. What is the optimal level of pollution abatement?

A) 0
B) 1
C) 2
D) 3
E) 4

Question 73

Zero pollution is almost surely NOT a desirable social goal because

A) the totals costs of complete pollution elimination will be far greater than the total benefits.
B) the marginal benefit is equal to zero.
C) the total benefits of complete pollution elimination will be far greater than the total costs.
D) society benefits by employing people in the "pollution fighting" industry.
E) the marginal cost is equal to zero.

Question 74

Direct pollution controls are usually inefficient because, for any given amount of pollution reduction, they

A) create new pollution as they eliminate existing pollution.
B) cost too much to enforce.
C) take into account differing marginal costs among firms.
D) do not minimize the total cost of pollution abatement.
E) are not complied with by firms.

Question 75

Given that different firms typically have different costs of pollution reduction,

A) tradable pollution permits will help to reduce the marginal costs of pollution.
B) there is a role for government to establish absolute limits on pollution.
C) the optimal emissions tax is thus easier to compute.
D) tradable pollution permits will help to reduce the total costs of pollution abatement.
E) it is clear that only a moral solution can actually achieve pollution reduction.

Question 76

An upward- sloping marginal cost curve for pollution abatement means that

A) additional increments of pollution abatement will yield decreasing benefits.
B) it is impossible to know the benefits from additional increments of pollution reduction.
C) the marginal benefit of pollution reduction will increase with additional increments of pollution reduction.
D) the cost of an extra unit of pollution abatement will increase as the total amount of abatement rises.
E) society views additional increments of pollution reduction as absolutely necessary.

Question 77

When the marginal costs of pollution abatement equal the marginal benefits of pollution abatement,

A) pollution has been entirely eliminated.
B) then firms are likely to increase output.
C) any further reductions in pollution will lower net social benefits.
D) then firms are likely to decrease output.
E) any further reductions in pollution will continue to increase net social benefits.

Question 78

The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2. FIGURE 17- 5
Refer to Figure 17- 5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions,

A) each firm would abate to Q3.
B) the level of pollution would be optimal.
C) each firm would abate to the same level.
D) Firm 2 would increase abatement beyond Q3 and Firm 1 would abate less than Q3.
E) Firm 1 would increase abatement beyond Q3 and Firm 2 would abate less than Q3.

Question 79

The banning of wood- burning stoves and fireplaces is an example of

A) a market- based environmental policy.
B) tradable emissions standards.
C) safety regulations.
D) direct pollution controls.
E) emissions taxes.

Question 80

As a method of pollution control, tradable emissions permits, or "cap and trade",

A) allow pollution to continue unabated, but only at a huge price to polluting firms.
B) are more effective than emissions taxes when pollution is hard to measure.
C) are not a morally acceptable method of pollution control.
D) are an example of paternalistic social regulation.
E) have the advantage of decentralized decision making (like emissions taxes) while also setting the maximum permissible level of pollution (like direct controls).