Deck 22: Government and the Market

Question 1

As population increases, so environmental degradation is likely to

A) stay constant.
B) reduce.
C) increase at a constant rate.
D) increase at an accelerating rate.
E) increase at a decelerating rate.

Answer 1

increase at an accelerating rate.

Question 2

If more protection is given to the environment, then it will be less possible to use it to dump waste. This is the conflict between

A) the use of the environment as a productive resource and the use of the environment as a dump.
B) the use of the environment as a productive resource and the environment as an amenity.
C) the use of the environment as a dump and the environment as an amenity.
D) There is no conflict in this case.

Answer 2

the use of the environment as a productive resource and the use of the environment as a dump.

Question 3

Which of the following is likely to increase pressures on the environment?

A) Technological progress
B) An increased price of non- renewable resources
C) An increase in living standards in developing countries
D) An increased recognition of global interdependence

Answer 3

An increase in living standards in developing countries

Question 4

Which of the following concepts explains the problem concerning the relationship between population growth and food production?

A) The law of diminishing returns
B) Economies of scale
C) Diminishing marginal utility
D) Diseconomies of scale
E) Opportunity cost

Question 5

Which of the following will not help reduce pressures on the environment?

A) Increased recognition of global interdependence
B) Increased prices of non- renewable resources
C) Technological progress
D) Growth in GNP

Question 6

The_________approach to the environment regards the earth and its resources as private or common assets to be used as important in themselves and to be subject to only minor, if any, degradation.

A) conservationist
B) Gaia
C) social- efficiency
D) free- market

Question 7

Which of the following is not a common method used to value the damage caused by the negative externality of pollution?

A) Revealed preferences
B) Contingency valuation
C) Financial costs to others
D) Net present value

Question 8

Which of the following defines spatial issues?

A) The problem that there is a long time period between when pollution/environmental damage occurs and when we feel the consequences
B) Environmental damage that affects very wide areas of the nation
C) The problem of the place where pollution is produced and the places where it is deposited may be geographically very far apart
D) The fact that environmental damage is irreversible

Question 9

Market- based environmental policy involves _______which can lead to problems due to difficulties______________.

A) removing all taxes and subsidies; by causing market failure
B) regulation and controls; in reducing bureaucracy
C) privatisation; in ensuring social efficiency
D) taxes and subsidies; in determining appropriate rates

Question 10

The UK Landfill Tax is an example of a

A) regulation.
B) social- impact standard.
C) tradable permit.
D) green tax.

Question 11

Which of the following are advantages of command- and- control systems over green taxes?

A) They are more appropriate when it is impossible to predict the precise environmental impact of pollution.
B) They have the effect of making the polluter pay for the amount of pollution generated.
C) They are easier to administer than green taxes.
D) A and B
E) A and C
F) B and C

Question 12

Which of the following are advantages of green taxes over command- and- control systems?
(i) They are more appropriate when it is impossible to predict the precise environmental impact of pollution.
(ii) They have the effect of making the polluter pay for the amount of pollution generated.
(iii) They are easier to administer than command- and- control systems.
(iv) They act as a continuous incentive for polluters to reduce the amount of pollution they generate.

A) (ii) and (iii)
B) (i) and (ii)
C) (iii) and (iv)
D) (ii) and (iv)
E) (i) and (iv)

Question 13

An ambient- based standard is

A) a command- and- control system that focuses on the amount of pollution generated, irrespective of its environmental impact.
B) a command- and- control system that is based on the effect of people.
C) a system of voluntary agreements made between firms and the government.
D) a command- and- control system that is focused on the environmental impact.

Question 14

Which of the following are features of a tradable permits scheme?

A) Firms have a financial incentive to reduce pollution.
B) The authorities need specific information about the polluting behaviour of individual firms.
C) Such a scheme penalises firms that are already using clean technology.
D) None of the above

Question 15

Which of the following are features of a tradable permits scheme?

A) Trading permits may lead to geographical concentration of polluting activities.
B) Firms have a financial incentive to reduce pollution.
C) Although the authorities decide the level of pollution permits, the market allocates the actual level of pollution that firms produce.
D) All of the above

Question 16

Which of the following are problems found when using taxes to reduce pollution?
(i) Taxation will make products less competitive internationally.
(ii) Green taxes may have progressive redistributional effects.
(iii) Employment will fall due to reduced output in industries.
(iv) The socially efficient tax rate is difficult to identify.
(v) The tax will be relatively ineffective if the demand for the product is less elastic.

A) (iii), (iv) and (v)
B) (i) and (v)
C) (ii), (iv) and (v)
D) (i) and (ii)
E) (i), (iii) and (iv)

Question 17

Which of the following was not identified by the Stern Report as essential to cut emissions?

A) Using lower carbon technologies for power, heat and transport
B) Increasing efficiency, to save emissions and cut costs
C) Cutting consumer demand for goods and services whose manufacture is emissions- intensive
D) Action to be taken on non- energy emissions, including deforestation
E) All of the above were identified as necessary for reducing emissions

Question 18

The Kyoto agreement of 1997 was for governments to take action on greenhouse gases so that between 1990 and 2012 they would

A) remain the same.
B) reduce by 5%.
C) increase by 5%.
D) reduce by 10%.
E) increase by 10%.

Question 19

In the Kyoto Agreement, the idea that, rather than reducing pollution, a polluting government could pay for forests to be planted as 'carbon sinks' is an example of the_________approach.

A) carbon tariff
B) green tax
C) regulation
D) tradable permits
E) social- impact standards

Question 20

The Bush administration's approach to global warming favoured

A) green taxes and social- impact standards.
B) green taxes and regulation.
C) tax credits and tradable permits.
D) green taxes and tariffs.
E) regulation and tax credits.

Question 21

The US government's 'Clear Skies and global climate change initiative' of February 2002 brought in policies which meant that, by 2012, greenhouse gas emissions in the US were_________than in 1990.

A) 25% higher
B) 15% higher
C) 7% lower
D) 5% lower
E) 5% higher

Question 22

Why was there less pressure on the industry to reduce emissions from 2010- 2012?

A) The recession led to less output and hence lower emissions
B) Owing to the global downturn, there was a worldwide agreement to delay the deadlines of the emissions targets
C) In order to help developing countries progress, emissions targets were reduced
D) Usage of the environment had fallen to a sustainable level

Question 23

Which of the following is not a characteristic of Phase III of the ETS?

A) A movement towards auctioning of allowances
B) An approach to allocation by national governments
C) A more centralised allocation of allowances
D) Proposals were published a long time before Phase III begun, so there was a long lead- in time

Question 24

The game theory approach to countries' decision- making on cutting greenhouse gases shows that the situation resembles a 'prisoner's dilemma'. This means that, because taking action involves costs, it is in the self- interest of an individual country to ___- while other countries _______.

A) take action; take action
B) take no action; take action
C) take action; take no action
D) take no action; take no action

Question 25

The demand for private car and public transport use is decided by

A) private firms.
B) private individuals.
C) government (central or local).
D) A and C

Question 26

Which one of the following demands for road space is not a derived demand?

A) Using a bus to go to work
B) Using a car to go shopping
C) Using a car to go to work
D) Using a car to go for a Sunday afternoon drive
E) Lorries using roads to deliver goods

Question 27

The demand for road space is a

A) inelastic demand.
B) finite demand.
C) derived demand.
D) complementary demand.
E) substitute demand.

Question 28

Spending on motoring as a percentage of household expenditure rises as income rises. This shows that motoring is

A) an inferior good.
B) a potential public good.
C) a superior good.
D) environmentally damaging.

Question 29

Estimates of the short- run price elasticity of demand for road fuel in industrialised countries range between - 0.15 to - 0.28. Which of the following is correct?

A) The price elasticity of demand is perfectly inelastic.
B) The price elasticity of demand is perfectly elastic.
C) The price elasticity of demand is unitarily elastic.
D) The price elasticity of demand is relatively elastic.
E) The price elasticity of demand is relatively inelastic.

Question 30

Which of the following are factors that affect the demand for road space?

A) Tastes/utility
B) Price of substitutes
C) Price of complements
D) Income
E) The marginal cost to the motorist of a journey
F) All of the above

Question 31

Which of the following is a complement to car travel?

A) Parking charges
B) Bus fares
C) Taxi fares
D) Train fares

Question 32

What is likely to be the cross- elasticity of demand between the demand for car travel and train fares?

A) High and positive
B) Low and negative
C) High and negative
D) Low and positive

Question 33

The external benefits of using cars are and the external costs are________.

A) low; high
B) low; low
C) high; high
D) high; low

Question 34

The supply of public (road) transport is decided by

A) private individuals.
B) private firms.
C) government (central or local).
D) a mixture of A and C.

Question 35

The supply of road space is decided by

A) private firms.
B) private individuals.
C) government (central or local).
D) a mixture of A and C
E) a mixture of B and C

Question 36

The supply of alternative modes to road transport is decided by

A) private individuals.
B) private firms.
C) government (central or local).
D) a mixture of A and C
E) a mixture of A and B

Question 37

One of the most important determinants of the demand for road space by car users is the 'price' to the motorist of the journey. This is not paid directly for using a specific stretch of road, except in the case of

A) taxes.
B) highly pollutant cars.
C) tolls.
D) congestion.
E) new cars.

Question 38

The 'price' to the motorist of any journey is the to the motorist.

A) marginal cost
B) total cost
C) total benefit
D) average cost
E) social benefit

Question 39

The demand for road construction materials is decided by

A) private individuals.
B) private firms.
C) government (central or local).
D) a mixture of B and C
E) a mixture of A and C

Question 40

Which of the following is not a marginal (private) cost to the motorist?

A) Fuel tax
B) Road tax
C) Congestion
D) Fuel consumption

Question 41

Which of the following are examples of external costs of motoring?
(i) Accidents
(ii) Pollution from exhaust fumes
(iii) Noise
(iv) Congestion

A) (ii), (iii) and (iv)
B) (i), (ii), (iii) and (iv)
C) (i) and (iii)
D) (ii) and (iv)

Question 42

In the long run, the supply of road space is not fixed. In identifying the socially efficient level of road construction, the authorities need to find the point at which

A) MPB of construction = MSC
B) MSB of construction = MPC
C) MSB of construction > MSC
D) MPB of construction = MPC
E) MSB of construction = MSC

Question 43

Which of the following motoring costs are not marginal (private) costs to the motorist?

A) Car maintenance costs
B) Depreciation due to wear and tear
C) Time spent making a journey
D) Depreciation due to ageing of the vehicle

Question 44

Consider the following externalities associated with traffic and traffic congestion.
(i) Air pollution externality
(ii) Noise pollution externality
(iii) Non- monetary congestion externality
(iv) Monetary congestion externality
Which of them explain the divergence between the MPC and MSC as more cars enter the road network?

A) Before congestion, (iii) and (iv) explain the divergence; after congestion (iii) and (iv) still explain it.
B) Before congestion, (iii) and (iv) explain the divergence; after congestion (i), (ii), (iii) and (iv) explain it.
C) Before congestion, (i) and (ii) explain the divergence; after congestion (i), (ii), (iii) and (iv) explain it.
D) Before congestion, (iii) and (iv) explain the divergence; after congestion (i), (ii), and (iii) explain it.
E) Before congestion, (ii) and (iii) explain the divergence; after congestion (ii), (iii) and (iv) explain it.

Question 45

Which of the following are problems with building more roads to reduce congestion?

A) Equity costs
B) Faster rate of growth of traffic
C) Environmental costs
D) All of the above
E) None of the above

Question 46

Why will increasing new car tax and car licences have little effect on car use?

A) They are variable costs and so do not increase the marginal cost of car use.
B) They are fixed costs and so do not increase the average cost of car use.
C) They are fixed costs and so do not increase the marginal cost of car use.
D) They are variable costs and so do not increase the average cost of car use.

Question 47

Which city has the following transport policy? When there is a possibility of dangerous pollution from car exhaust fumes, about half of the motor vehicles are excluded from the affected area.

A) New York
B) London
C) Singapore
D) Los Angeles
E) Athens

Question 48

Which city has the following transport policy? Car licences are very expensive, vehicle entry to the city centre is very restricted, road pricing is being introduced and modern cheap rail transport is being expanded.

A) Madrid
B) Athens
C) London
D) New York
E) Singapore

Question 49

Which of the following is a market- based solution to traffic congestion?

A) Provision of public transport
B) Parking restrictions
C) Restricting car access
D) Road pricing

Question 50

Which of the following is not a drawback of parking restrictions?

A) People may drive round looking for a parking space and add to congestion.
B) People may park illegally, thereby creating hazards and not reducing congestion.
C) People may park down side streets in residential areas, thereby creating disturbances.
D) People may choose to use public transport instead, thereby adding to the shortage of space on trains, buses and other types of public transportation.

Question 51

Building more roads will lead to gainers and losers. If the gainers of the new road compensated the losers, but still had a net gain, there would be

A) a potential Pareto improvement.
B) an increasing opportunity cost.
C) a socially efficient gain.
D) an equity trade- off.
E) an economy of scale.

Question 52

Privatisation is the transfer of

A) publicly held stock to private individuals.
B) privately owned businesses to the government sector.
C) government businesses to the private sector.
D) corporately owned businesses to individuals.

Question 53

Which of the following UK nationalised industries (now privatised) had never been in the private sector?

A) National Bus Company
B) British Rail
C) British Gas
D) British Steel

Question 54

Which of the following UK nationalised industries (now privatised) had previously been part of the private sector?

A) BT
B) British Gas
C) British Rail
D) All of the above

Question 55

Railway privatisation in the UK has resulted in____passengers and _______fares.

A) fewer; lower
B) more; lower
C) fewer; higher
D) more; higher

Question 56

When the minimum economic scale of a firm is close to the size of the market, we call the firm a

A) deregulated industry.
B) natural monopoly.
C) nationalised industry.
D) contestable monopolist.
E) public utility.

Question 57

The best UK example of a natural monopoly is

A) Virgin Trains.
B) Tesco.
C) BT.
D) North West Water.
E) Royal Mail.

Question 58

De- regulation is where the government

A) sells public utilities to the private sector.
B) removes barriers to entry and minimum product quality standards.
C) only removes barriers to entry.
D) breaks up private sector monopolies.

Question 59

Anti- monopoly legislation is undertaken to_______competition and market regulation is undertaken to________-competition.

A) promote; promote
B) restrict; promote
C) promote; restrict
D) restrict; restrict

Question 60

In the UK it is possible to buy electricity from a gas company and gas from an electricity company. This is

A) natural monopoly.
B) de- regulation.
C) cross- subsidisation.
D) making markets more contestable.

Question 61

Regulation of public utilities concentrates on _____in the UK, and on_________in the US.

A) profits; profits
B) prices; prices
C) profits; prices
D) prices; profits

Question 62

RPI- X [the change in the Retail Price Index minus X%] is the method of regulation used for the_____
industry in the_______ .

A) water; UK
B) phone; UK
C) water; US
D) phone; US

Question 63

Regulation, which concentrates on controlling prices so that the firm can just make normal profit, occurs in

A) the UK.
B) Russia.
C) the US.
D) China.
E) Brazil.

Question 64

Which one of the following is not a feature of UK regulation?

A) Each regulatory body is responsible for just one industry.
B) The system of regulation is discretionary, with the regulator able to judge individual examples of the behaviour of the industry on their own merits.
C) All pricing decisions in the regulated industries are subject to regulation.
D) Price regulation takes account of cost increases beyond the control of the industries.
E) If there is no agreement between the regulator and the industry when reviewing price- setting formulae, an appeal can be made to the Competition Commission for settlement of the dispute.

Question 65

The wholesale market for electricity in the UK is called the

A) supergrid.
B) OFFER.
C) pool.
D) national grid.

Question 66

Economists use the term 'regulatory capture' to mean a situation where the private sector firms being regulated

A) persuade the government to change the regulatory regime.
B) persuade the regulator to act in the firms' interests
C) bribe the regulator.
D) are allowed to regulate themselves.

Question 67

When regulators start to act in the interests of the industry being regulated, this is called

A) privatisation.
B) stakeholding.
C) regulatory capture.
D) corruption.
E) de- regulation.

Question 68

If all other industries were operating under perfect competition and there were no externalities, then the first- best policy for industry X would be to produce where

A) MR = MC
B) AR = AC
C) MC = P
D) P = AR
E) MC = AC

Question 69

When UK nationalised industries were privatised, this resulted in less public control over_____and more public control over_________ .

A) output; prices
B) investment; prices
C) output; investment
D) prices; output

Question 70

Franchising [leasing] public assets for a number of years has been used in the UK in which of the following industries?

A) Bus services
B) Gas supply
C) Water supply
D) Electricity supply
E) TV channels

Question 71

If it is regarded as socially desirable for reasons of equity to provide loss- making rural bus services, what is the least distortionary solution to this problem?

A) Subsidise the rural services from increased income tax.
B) Subsidise the rural services from increased taxes on the motorist.
C) Keep urban fares the same and pay for the rural services from reduced bus company profits.
D) Raise the fares on the urban bus services to cover the losses of the rural services so as to retain the same overall level of profit as before.
E) Subsidise the rural services from increased local taxes in rural areas.

Question 72

In the UK, the most important privatisations were_______when nationalised and______when privatised.

A) competitive; competitive
B) monopolies; competitive
C) monopolies; monopolies
D) competitive; monopolies

Question 73

In order to encourage competition in the phone industry, the regulators have ordered BT to keep its wholesale prices________ than it would wish and its prices to the public________than it would wish.

A) higher; lower
B) lower; higher
C) lower; lower
D) higher; higher

Question 74

Which of the following is not a problem with the operation of regulation in the UK?

A) There is a danger of regulatory capture as regulators become more involved in their industry and get to know the managers on a personal level and may, therefore, become less tough.
B) The increasing complexity of regulation has made planning difficult, which has led to a growth of short- termism.
C) The system is inflexible as it does not allow for the licence and price formulae to be changed as circumstances change.
D) The 'RPI minus X' formula reduces firms' profits and so may lead to a decline in investment and a reduction in the quality of service provided to consumers.
E) The 'RPI minus X' formula was designed to provide an incentive for firms to cut costs, but X was initially set too low, thereby removing the incentive to cut costs.

Question 75

Which of the following are features of UK regulation?

A) Each regulatory body is responsible for just one industry.
B) Price regulation is normally of the form RPI plus X.
C) All pricing decisions in the regulated industries are subject to regulation.
D) B and C

Question 76

Which of the following are features of UK regulation?

A) Price regulation can involve industries having to reduce their prices even when there is inflation.
B) Price regulation takes account of cost increases beyond the control of the industries.
C) Each regulatory body is responsible for just one industry.
D) All of the above
E) B and C

Question 77

___________is when a firm is granted the licence to operate a given part of an industry for a specified length of time.

A) Nationalisation
B) Licensing
C) Regulation
D) De- regulation
E) Franchising

Question 78

Growth in national income will reduce pressures on the environment.

Question 79

The optimum use of the environment is the same for everyone.

Question 80

Technological progress will reduce pressures on the environment.