Deck 13: The Environment, Health, and Safety

Question 1

To the patient,the marginal cost of medical care is zero

A) always.
B) under first-dollar insurance coverage.
C) in an HMO.
D) never.

Answer 1

B

Question 2

When Dale visits the doctor,Dale does not pay for either the visit or any tests the doctor may order.Dale must therefore

A) be a member of an HMO.
B) have a medical insurance policy with a deductible.
C) have first-dollar medical insurance.
D) be underutilizing medical care.

Answer 2

C

Question 3

To reduce the social loss due to first-dollar insurance coverage of the medical treatment,

A) the marginal cost should be reduced.
B) the marginal cost should be increased.
C) the marginal benefit should be reduced.
D) the consumer must bear some of the marginal cost.

Answer 3

D

Question 4

According to the textbook,the Manning study suggests that a large share of the inflation in medical expenditures is caused by

A) advances in medical technology.
B) high deductible policies.
C) the annual stipend given to the poor to defray the medical expense.
D) first-dollar medical insurance.

Question 5

The __________ the elasticity of demand for medical care,the __________ the extent of over consumption of medical treatment due to insurance.

A) larger;smaller
B) smaller;greater
C) larger;greater
D) smaller;smaller

Question 6

According to the textbook,the percentage of gross domestic product devoted to healthcare between the years 1940 and 2000

A) declined from 4% to 2%.
B) increased slightly from 4% to 6%.
C) increased sharply from 4% to 14%.
D) increased exponentially from 4% to 40%.

Question 7

Under a first-dollar medical insurance plan,the marginal cost of treating a covered illness is

A) positive.
B) zero.
C) negative.
D) a percentage of the total cost.

Question 8

One implication of the results of the Manning study is that the demand for non-catastrophic health care is

A) perfectly inelastic
B) somewhat elastic
C) driven by the media
D) not subject to standard economic theory

Question 9

Prior to World War II,most consumers in the United States

A) owned medical insurance for catastrophic illness but self insured against routine medical care.
B) self insured against catastrophic illness but owned medical insurance for routine medical care.
C) had no medical insurance of any type.
D) owned medical insurance covering both catastrophic and routine medical care.

Question 10

A great deal of medical expenditure inflation,from 4% in 1940 to 14% today,has to do with

A) the emergence of health insurance.
B) high demand for cosmetic surgery.
C) government not controlling the price of routine medical services.
D) increase in spending on medical research.

Question 11

The effect of widespread insurance covering routine medical care is to reduce the

A) equilibrium amount of routine medical care.
B) marginal benefit of routine medical care to the insured.
C) marginal cost of routine medical care to the insured.
D) total cost of routine medical care to the insured.

Question 12

According to the text,the only sensible criterion for allocating scarce health care resources is

A) determined by length of time on a waiting list.
B) based on the willingness to pay of the recipient of the care.
C) based on the degree of suffering of the recipient of the care.
D) a cost-benefit test.

Question 13

According to the textbook,Manning and his colleagues found that people with $1000-deductible policies spent _____ on health care relative to people with first-dollar coverage.

A) less
B) more
C) an equal amount
D) 50% more

Question 14

Insurance that pays for all expenses generated by the insured's activity is known as

A) total-dollar insurance coverage.
B) last-dollar insurance coverage.
C) cradle to grave insurance coverage.
D) first-dollar insurance coverage.

Question 15

The amount of waste caused by full insurance coverage depends on

A) the individual who is covered by the insurance plan.
B) the price elasticity of demand for medical service.
C) the price elasticity of supply of medical service.
D) whether people care about the equitable distribution of care.

Question 16

If the marginal cost of treating an illness is zero,the optimal amount of treatment to receive is the amount

A) for which the marginal benefit is zero.
B) that cures the illness.
C) for which average benefit is zero.
D) for which the total benefit is zero.

Question 17

Medical insurance covering routine medical care became common

A) at the turn of the last century.
B) in the 1920's.
C) after World War II.
D) during the 1980's.

Question 18

The growth of medical insurance in general and first-dollar coverage specifically has reduced the marginal cost of treatment paid by the consumer.Therefore,the current level of medical treatment in the United States is

A) equal to the efficient level.
B) less than the efficient level.
C) greater than the efficient level.
D) less than or equal to the efficient level.

Question 19

In general,the optimal amount of medical care to receive is

A) as much as one can afford.
B) enough to get well.
C) that quantity for which the total costs of the care equal the total benefits.
D) that quantity for which the marginal costs of the care equal the marginal benefits.

Question 20

First-dollar insurance coverage means that

A) most of the insured's expenses are covered.
B) some of the insured's expenses are covered.
C) all of the insured's expenses are covered.
D) the first 10% of the insured's expenses are covered.

Question 21

According to the textbook,public concern with under treatment by HMO's has led to proposals that would

A) outlaw HMO's.
B) grant patients the right of appeal when denied treatment.
C) limit medical malpractice settlements.
D) provide prescription drugs for free.

Question 22

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 go with option (2)?

A) A physician who is compensated under conventional health insurance.
B) A physician in an HMO plan.
C) A physician who is concerned about the marginal cost of MRI.
D) Any physician will recommend option (2).

Question 23

For a fixed percent reduction in pollution emissions to be economically efficient,it would have to be the case that

A) the marginal cost of pollution control is the same across all firms.
B) enforcement is vigorous.
C) all firms be the same size.
D) large polluters reduce emissions by more than small polluters.

Question 24

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
Suppose the government requires the three firms to reduce pollution to 2 tons of smoke per day,for a total of 6 tons.This will result in a total cost of __________.

A) $59
B) $42
C) $230
D) $135

Question 25

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
In general,all three firms face _____ costs of abatement,suggesting that the principle of _____ applies to pollution abatement.

A) increasing marginal;low-hanging-fruit
B) excessive;cost-benefit
C) high;adverse selection
D) decreasing average;economies of scale

Question 26

HMO's might provide lower levels of medical treatment because they

A) have legal protection from malpractice lawsuits.
B) employ lower quality doctors.
C) receive a fixed payment for medical services regardless of the amount of services provided.
D) save costs by purchasing lower quality medical equipment.

Question 27

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
In the absence of either government regulation or private negotiation,total expenditure on pollution abatement will be $__________,and total pollution will be __________.

A) 0;4 tons
B) 0;12 tons
C) 59;9 tons
D) 44;8 tons

Question 28

The most efficient distribution of pollution abatement among polluters is

A) a geographically equal abatement.
B) a fixed percent reduction for all.
C) for large reductions from the largest polluters.
D) when the marginal cost of abatement is the same across all polluters.

Question 29

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
It would cost Firm A ____ to reduce emissions by one ton if it currently emits 3 tons,and ___ to reduce an additional ton of emissions if it currently emits 2 tons.

A) $14;$20
B) $14;$16
C) $16;$20
D) $30;$50

Question 30

An economic argument in favor of providing medical care through HMOs is that they

A) increase provision of care to the sickest patients.
B) reduce incentives for providing unnecessary or excessive care.
C) reduce the cost of seeing a specialist.
D) reduce the probability of a malpractice claim.

Question 31

In contrast to first-dollar insurance coverage,the efficiency concern for HMO's is that

A) the price will be too low.
B) acute treatment will be overemphasized.
C) too much medical treatment will be provided.
D) too little medical treatment will be provided.

Question 32

A group of physicians that provide healthcare services to members for a fixed annual fee is termed a

A) health management organization.
B) fee-for-service plan.
C) partnership.
D) health maintenance organization.

Question 33

The textbook cites a study comparing a group of consumers with first-dollar coverage and a group with a $1000 deductible.The study results indicate that those with the deductible used __________ amount of medical services and had __________ health outcomes.

A) a smaller;the same
B) a larger;better
C) a larger;the same
D) a smaller;worse

Question 34

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
Suppose that the government imposes a tax of $20 per ton of pollution generated.If Firm A produces 2 tons of smoke,its abatement costs plus taxes will total ____,and if Firm A produces 3 tons of smoke,its abatement costs plus taxes will total ____.Firm A will be better off emitting

A) $30;$14;3 tons than 2 tons
B) $40;$24;3 tons than 2 tons
C) $36;$74;2 tons than 3 tons
D) $70;$74;2 tons than 3 tons

Question 35

If the marginal costs of pollution abatement are different across firms,then regulations that require fixed percentage reductions in pollution will be

A) efficient.
B) inefficient.
C) ineffective.
D) fair to all polluters.

Question 36

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 go with option (1)?

A) A physician under conventional health insurance.
B) A physician in an HMO plan.
C) A physician who is NOT concerned about the marginal cost of MRI.
D) Any physician will recommend option (1).

Question 37

As fewer families choose to purchase insurance,the cost of premiums will rise,ensuring that fewer,and sicker,families buy insurance.This is an example of

A) long-term upward spiral.
B) a commitment problem.
C) a moral hazard.
D) adverse selection.

Question 38

The major characteristic of an HMO is

A) emphasis on acute medical treatment.
B) medical treatment is provided for a fixed annual payment.
C) freedom to see nonmember physicians.
D) medical treatment is provided on a fee-for-service basis.

Question 39

As fewer families choose to purchase medical insurance,

A) the frequency of illness in the general population rises.
B) the remaining insured families tend to have higher than average rates of illness.
C) the frequency of illness in the general population falls.
D) the remaining insured families tend to have lower than average rates of illness.

Question 40

Assume that larger firms can reduce pollution emissions more cheaply than smaller firms.A fixed percent reduction in pollution emissions would therefore

A) penalize large and small firms equally.
B) penalize large firms more.
C) ensure the reduction in pollution was achieved at the lowest cost.
D) penalize smaller firms more.

Question 41

In the absence of environmental protection laws,firms pollute because

A) business owners follow different norms than do environmentalists.
B) controlling emissions costs money,reducing profits.
C) business owners do not believe that pollution is a problem.
D) the cost pollution imposes on society is small relative to the cost of reducing pollution.

Question 42

Two firms can use five different technologies to produce the same quantity of output: 1,2,3,4 and 5.The first technology is the cheapest,but also the dirtiest.The fifth technology is the most expensive,but results in the lowest levels of pollution.The amount of pollution emitted by each firm and the cost of the technologies are shown in the table. $\begin{array}{lllll}\text { Technology } & 1 & 2 & 3 & 4 & 5 \\\text { Emissions } & 10 \text { tons } & 8 \text { tons } & 6 \text { tons } & 4 \text { tons } & 2 \text { tons } \\\text { Acme's Costs } & \$ 750 & \$ 800 & \$ 1000 & \$ 1400 & \$ 2000 \\\text { FirmCo's Costs } & \$ 500 & \$ 700 & \$ 1200 & \$ 2200 & \$ 4000\end{array}$
Suppose the firms are both currently using technology 1,and that the government adopts rules requiring each firm to reduce pollution by 20%.To comply,the firms will adopt technology ___ for a total cost of __________.

A) 1;$1250.
B) 2;$1500.
C) 3;$2200.
D) 4;$3600.

Question 43

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
The least costly way of lowering smoke emissions from 12 tons to 9 tons would be for

A) each firm to reduce emissions by 1 ton,emitting 3 tons each.
B) Firm A to emit 1 ton,and the other firms to emit 4 tons each.
C) Firm A to emit 2 tons,Firm B to emit 4 tons and Firm C to emit 3 tons.
D) Firm A to emit 0 tons;Firm B to emit 4.5 tons and Firm C to emit 4.5 tons.

Question 44

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
Suppose the government decides to sell 6 permits and an environmental group is determined to only allow 5 tons of pollution to be emitted.To accomplish its goal,the environmental group should bid __________ for the permit.

A) $301
B) $201
C) $111
D) $51

Question 45

Two firms can use five different technologies to produce the same quantity of output: 1,2,3,4 and 5.The first technology is the cheapest,but also the dirtiest.The fifth technology is the most expensive,but results in the lowest levels of pollution.The amount of pollution emitted by each firm and the cost of the technologies are shown in the table. $\begin{array}{lllll}\text { Technology } & 1 & 2 & 3 & 4 & 5 \\\text { Emissions } & 10 \text { tons } & 8 \text { tons } & 6 \text { tons } & 4 \text { tons } & 2 \text { tons } \\\text { Acme's Costs } & \$ 750 & \$ 800 & \$ 1000 & \$ 1400 & \$ 2000 \\\text { FirmCo's Costs } & \$ 500 & \$ 700 & \$ 1200 & \$ 2200 & \$ 4000\end{array}$
In the absence of either government regulation or private negotiation,the 2 firms will produce using technology __________ and pollution will be __________.

A) 3;12 tons
B) 5;4 tons
C) 2;16 tons
D) 1;20 tons

Question 46

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
Industrio would be willing to pay up to ___ for the right to discharge 1 ton of pollution,and Capitalista would be willing to pay up to __ for the right to discharge 1 ton of pollution.

A) $50;$25
B) $1000,$600
C) $50,$50
D) $300,$200

Question 47

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
What tax,in whole dollars per ton,would have to be charged to reduce smoke to 5 tons per day?

A) $21
B) $26
C) $36
D) $41

Question 48

Compared to a fixed percentage reduction regulation,a tax on pollution encourages

A) all firms to reduce pollution by the same percent.
B) all firms to use the same technology to reduce pollution.
C) firms that can most cheaply reduce pollution to make sizable reductions.
D) economic inefficiency.

Question 49

Two firms can use five different technologies to produce the same quantity of output: 1,2,3,4 and 5.The first technology is the cheapest,but also the dirtiest.The fifth technology is the most expensive,but results in the lowest levels of pollution.The amount of pollution emitted by each firm and the cost of the technologies are shown in the table. $\begin{array}{lllll}\text { Technology } & 1 & 2 & 3 & 4 & 5 \\\text { Emissions } & 10 \text { tons } & 8 \text { tons } & 6 \text { tons } & 4 \text { tons } & 2 \text { tons } \\\text { Acme's Costs } & \$ 750 & \$ 800 & \$ 1000 & \$ 1400 & \$ 2000 \\\text { FirmCo's Costs } & \$ 500 & \$ 700 & \$ 1200 & \$ 2200 & \$ 4000\end{array}$
Suppose that the government imposes a tax of $150 per ton of pollution.As a result,pollution emissions are __________ tons for a total cost of ____.

A) 6;$4200
B) 8;$3600
C) 10;$3600
D) 14;$1700

Question 50

The use of pollution permits by the government to reduce pollution is

A) theoretically interesting,but untried in the United States.
B) unworkable.
C) common in several parts of the United States.
D) common in the third world.

Question 51

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
Suppose that the government imposes a tax of $21 per ton of pollution generated.Firm A will emit ____ tons;Firm B will emit ___ tons and Firm C will emit ___ tons.

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

Question 52

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
The ultimate equilibrium price of six permits is __________ with Industrio buying __________ and Capitalista buying __________.

A) $100;3;3
B) $110;2;4
C) $50;4;2
D) $300;3;3

Question 53

The advantage to selling pollution permits rather than using a fixed percent reduction for all firms is

A) government raises additional revenue.
B) reductions in pollution are accomplished by those firms that can do so at least cost.
C) enforcement costs are eliminated.
D) pollution is driven to zero.

Question 54

Two firms can use five different technologies to produce the same quantity of output: 1,2,3,4 and 5.The first technology is the cheapest,but also the dirtiest.The fifth technology is the most expensive,but results in the lowest levels of pollution.The amount of pollution emitted by each firm and the cost of the technologies are shown in the table. $\begin{array}{lllll}\text { Technology } & 1 & 2 & 3 & 4 & 5 \\\text { Emissions } & 10 \text { tons } & 8 \text { tons } & 6 \text { tons } & 4 \text { tons } & 2 \text { tons } \\\text { Acme's Costs } & \$ 750 & \$ 800 & \$ 1000 & \$ 1400 & \$ 2000 \\\text { FirmCo's Costs } & \$ 500 & \$ 700 & \$ 1200 & \$ 2200 & \$ 4000\end{array}$
Suppose that the government imposes a tax of $150 per ton of pollution.As a result,Acme adopts technology __________,and FirmCo adopts technology _______.

A) 2;1
B) 3;2
C) 3;3
D) 4;3

Question 55

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
A government regulation that requires both firms to reduce pollution by 50% results in process ___________ being adopted and the private costs are __________.

A) A;$575
B) B;$650
C) C;$790
D) D;$1100

Question 56

The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is

A) nonpayment of the tax.
B) it would cause prices to rise.
C) that it only works in theory.
D) establishing the optimal size of the tax.

Question 57

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution.The government starts the bidding with an opening price of $30.What happens next?

A) A total of five permits will be demanded,forcing the government to lower the price.
B) Industrio will purchase all available permits at $30.
C) Industrio will demand 3 permits and Capitalista will demand 3 permits.
D) A total of seven permits will be demanded,forcing the government to raise the price.

Question 58

Compared to the taxing of pollution,pollution permits offer the advantage of

A) eliciting the largest reduction in pollution from those firms that can do so most cheaply.
B) raising revenues for the government.
C) allowing the public to influence the amount of pollution allowed through the purchasing of permits.
D) ensuring all firms reduce pollution by the same percentage.

Question 59

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
Suppose a permit system has been adopted and each firm has already purchased one permit.Industrio would be willing to pay up to ___ for the right to discharge a second ton of pollution,and Capitalista would be willing to pay up to __ for the right to discharge a second ton of pollution.

A) $200;$300
B) $200;$110
C) $100;$40
D) $500;$290

Question 60

Two firms can choose from five different technologies to reduce their pollution: A,B,C,D and E.The amount of pollution emitted by each technology and the cost of the technologies are shown in the table.Both firms have adopted technology A and currently emit 4 tons apiece.The government is considering two plans to reduce pollution: a 50% reduction by both firms or selling pollution permits.One permit entitles the owner to emit one ton of pollution.Without a permit,no pollution can be emitted.
$\begin{array}{lccccc} & \text { A: } & \text { B: } & \text { C: } & \text { D: } & \text { E: } \\& 4 \text { tons } & 3 \text { tons } & 2 \text { tons } & 1 \text { ton } & \text { no pollution } \\\text { Industrio } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1000 \\\text { Capitalista } & \$ 225 & \$ 250 & \$ 290 & \$ 400 & \$ 600\end{array}$
If the government decided to use permits instead of regulation,in order to reduce pollution by 50% it would need to sell _____ permits.

A) 4
B) 2
C) 3
D) 5

Question 61

Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.The cost of reducing the injury rate by 1% is $200 per worker.Firms currently pay $20,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury rate.The total benefit to workers of the existing firms' offer is __________ and the benefit of the new firms' offer is __________.

A) $20,000;$19,500
B) $20,000;$20,500
C) $19,800;$19,700
D) $20,000;$20,000

Question 62

Workplace safety laws are ___ in developed countries because

A) rare;policy makers believe that they undermine the free market system.
B) rare;corporate lobbyists convince legislators to vote against them.
C) necessary;without them firms that hire workers in competitive labor markets would have no incentive to provide safe workplaces.
D) common;policy makers believe that labor markets are not perfectly competitive and so firms may not provide the optimal level of safety.

Question 63

Pat has just graduated from college and has two job offers.One pays $45,000 and requires that Pat supervise employees doing construction work on a busy highway.The other is an office job that pays $40,000.Chris has received the same offers from the same firms.Pat values the added safety of the office job at $6,000 per year and Chris values the added safety of the office job at $3,000 per year.
Pat is more ____ than Chris.

A) risk averse
B) vulnerable to adverse selection
C) careful
D) rational

Question 64

Suppose that all workers value a safe job $2,000/year more than a risky job.The cost of safety is $700 per worker.Firms currently pay $35,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $34,000 per year and safe jobs.The total cost of hiring a worker to the existing firms is __________ and to the new firms it is __________.

A) $35,700;$33,700
B) $35,000;$34,700
C) $34,700;$35,000
D) $33,700;$35,700

Question 65

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 produced.The regulated firms all currently pollute and face varying costs of pollution reduction,though all face increasing marginal costs of pollution reduction.
Because firms face increasing marginal costs to reduce pollution,demand for pollution permits will be

A) upward sloping.
B) downward sloping.
C) perfectly inelastic.
D) perfectly elastic.

Question 66

Pat has just graduated from college and has two job offers.One pays $45,000 and requires that Pat supervise employees doing construction work on a busy highway.The other is an office job that pays $40,000.Chris has received the same offers from the same firms.Pat values the added safety of the office job at $6,000 per year and Chris values the added safety of the office job at $3,000 per year.
Suppose that the agency that regulates highway safety requires that the freeway construction firm provide additional safety precautions.After the changes,Chris places no additional value on working at the office,and Pat values the added safety of the office job by $2,000 per year.If the safety precautions cost the firm $3,000 per year and the freeway construction firm reduces salaries by $3,000 to $42,000

A) Pat will certainly take the office job and Chris will be indifferent.
B) both will certainly take the freeway job.
C) both will certainly take the office job.
D) Chris will certainly take the freeway job and Pat will be indifferent.

Question 67

Pat has just graduated from college and has two job offers.One pays $45,000 and requires that Pat supervise employees doing construction work on a busy highway.The other is an office job that pays $40,000.Chris has received the same offers from the same firms.Pat values the added safety of the office job at $6,000 per year and Chris values the added safety of the office job at $3,000 per year.
Suppose that the agency that regulates highway safety requires that the freeway construction firm provide additional safety precautions.After the changes,Chris places no additional value on working at the office,and Pat values the added safety of the office job by $2,000 per year.The salaries remain the same.Who will choose to work where?

A) Pat will certainly take the office job and Chris will be indifferent.
B) Both will certainly take the freeway job.
C) Both will certainly take the office job.
D) Chris will certainly take the freeway job and Pat will be indifferent.

Question 68

Pat has just graduated from college and has two job offers.One pays $45,000 and requires that Pat supervise employees doing construction work on a busy highway.The other is an office job that pays $40,000.Chris has received the same offers from the same firms.Pat values the added safety of the office job at $6,000 per year and Chris values the added safety of the office job at $3,000 per year.
Pat will be better off taking the ____ job and Chris will be better off taking ___ job.

A) office;the office
B) office;the highway
C) highway;the office
D) highway;the highway

Question 69

Suppose that all workers value a safe job $2,000/year more than a risky job.The cost of safety is $700 per worker.Firms currently pay $35,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $34,000 per year and safe jobs.The new firms would find that

A) no workers are applying for their jobs.
B) only lower quality workers would apply for their jobs.
C) only injury prone workers would apply.
D) workers would be willing to accept their offer.

Question 70

Which argument against enacting workplace safety regulations can be justified using economic tools or observation?

A) Compensating wage differentials give firms an incentive to provide safety features.
B) Historically,employers have provided safe working environments without regulation.
C) According to the cost-benefit principle,the marginal cost of safety virtually always exceeds the marginal benefit.
D) Insurance will cover most workplace injuries,so the safety regulations are unnecessary.

Question 71

Suppose that all workers value a safe job $2,000/year more than a risky job.The cost of safety is $700 per worker.Firms currently pay $35,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $34,000 per year and safer jobs.The total benefit to workers of the existing firms' offer is __________ and the benefit of the new firms' offer is __________.

A) $0;$1,000
B) $1,000;$1,000 00
C) $33,000;$34,000
D) $35,000;$36,000

Question 72

Suppose that you are an economic researcher,and you have access to detailed information about all of the firms in a given geographic area.You would conclude that the pollution reduction policy in that area is efficient if you observe that

A) all firms produce approximately the same amount of pollution.
B) the cleanest firms are also the most profitable.
C) all firms have approximately equal marginal costs of reduction at current emission levels.
D) all firms currently use the same pollution reduction technology.

Question 73

Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.The cost of reducing the injury rate by 1% is $200 per worker.Firms currently pay $20,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury rate.The new firms would find that

A) no workers are applying for their jobs.
B) their costs of wages and injury reduction exceed the costs of the existing firms.
C) workers would be willing to accept their offer.
D) only injury prone workers would apply.

Question 74

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 produced.The regulated firms all currently pollute and face varying costs of pollution reduction,though all face increasing marginal costs of pollution reduction.
The two policies being considered will result in the same amount of pollution reduction

A) never.
B) always.
C) only if the equilibrium price in the pollution permit market is $250.
D) only if the regulating agency opens the bidding for permits at $250.

Question 75

Pollution permit policies achieve an _____ outcome because

A) inefficient;wealthier firms can dominate the market.
B) efficient;the supply of permits is elastic.
C) inefficient;the supply of permits is set by the government,and so is inelastic.
D) efficient;firms have an incentive to minimize costs.

Question 76

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 produced.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.What might explain that decision?

A) Permit auctions raise more revenue than do taxes.
B) The permit policy allows regulators to achieve reduction goals without having detailed knowledge about firms' abatement costs.
C) The permit policy will reduce pollution by more than would the tax policy.
D) Firms prefer the permit policy because it allows them to choose the least-cost reduction technology.

Question 77

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 produced.The regulated firms all currently pollute and face varying costs of pollution reduction,though all face increasing marginal costs of pollution reduction.
Suppose the tax policy is adopted.A firm will be willing to pay the tax if $250 is less than or equal to

A) the cost of reducing its existing pollution by one unit.
B) its marginal revenue.
C) its average total cost of production.
D) the average cost of eliminating one unit of pollution.

Question 78

Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.The cost of reducing the injury rate by 1% is $200 per worker.Firms currently pay $20,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury rate.The total cost of hiring a worker to the existing firms is __________ and to the new firms it is __________.

A) $20,000;$19,500
B) $20,000;$18,500
C) $19,800;$19,500
D) $20,000;$19,700

Question 79

Which argument in favor of enacting workplace safety regulations can be justified using economic tools or observation?

A) Analyzing safety in terms of monetary costs and benefits is inappropriate.
B) Concerns about relative income encourage some workers to accept risk in exchange for higher wages,and that strategy can lead to an inefficient outcome.
C) Economic regulations in competitive markets generally increase total economic surplus.
D) Firms that exploit workers typically earn excessive profits for the owners,while the workers bear the risk of injury.

Question 80

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 produced.The regulated firms all currently pollute and face varying costs of pollution reduction,though all face increasing marginal costs of pollution reduction.
Suppose the permit policy is adopted.A firm will wish to purchase its first permit if the price of that permit is less than or equal to

A) the cost of reducing its existing pollution by one unit.
B) the lowest cost of eliminating one unit of pollution.
C) the marginal cost of eliminating its last unit of pollution and operating completely pollution free.
D) the average cost of eliminating one unit of pollution.