Deck 8: Assessing Costs for Environmental Decision Making

Question 1

According to the U.S. data presented in the text, the highest proportion of operating and capital abatement costs is on recycling.

Answer 1

False

Question 2

The value of reduced product variety due to an environmental policy initiative or regulation is an example of an implicit cost.

Answer 2

True

Question 3

The area under the MSC from the origin up to some abatement level, A₀, is the TSC of abating A₀ units.

Answer 3

True

Question 4

According to the survey approach, abatement spending is estimated based on the lowest-cost technology available.

Question 5

An advantage of the survey approach is that the estimates are derived from external experts.

Question 6

The marginal social cost (MSC) curve linked to environmental policy is captured by the supply of the public good, environmental quality.

Question 7

When abatement expenditures are estimated in accordance with the input provided directly from polluting sources, that estimation method is known as the direct approach.

Question 8

The engineering approach is difficult to use for proposed environmental initiatives because of uncertainty about future prices, the availability of raw materials, and expected costs.

Question 9

Along the TSC curve, the incremental cost associated with increasing abatement from A₁ to A₂ is found as the vertical distance between the TSC at A₁ and TSC at A₂.

Question 10

Fixed costs are controllable in the short run but not the long run.

Question 11

Expenditures on research and development represent the majority of spending on pollution and control in the United States.

Question 12

The spending needed to maintain the utility level of society to compensate for resources used to achieve a cleaner environment is referred to as explicit environmental costs.

Question 13

The accounting equivalent of variable costs is capital costs.

Question 14

When implementing environmental policy, all expenses paid by the government plus compliance costs paid by all economic sectors are known as explicit costs.

Question 15

A disadvantage of the survey approach is that polluting sources might not be sufficiently well informed to provide good estimates.

Question 16

Newly proposed controls on GHG emissions from motor vehicles are expected to elevate automobile prices.

Question 17

Marginal social cost is equivalent to the sum of the market-level marginal abatement costs and the government's marginal cost of enforcement.

Question 18

According to available U.S. data, spending on pollution abatement and control has grown fairly steadily over time.

Question 19

Incremental costs are the accumulated expenditures associated with an environmental policy initiative.

Question 20

Marginal social cost (MSC) of some abatement level, A₁, can be determined as the area under the total social cost (TSC) function up to A₁.

Question 21

The MCE function represents the

A) marginal cost of enforcement incurred by the government
B) marginal cost of the externality linked to environmental pollution
C) market cost of a given environmental policy initiative
D) extra cost of the engineering approach

Question 22

The time cost incurred by consumers who must find substitute products after a ban is placed on some good or service is an example of a(n)

A) capital cost
B) fixed cost
C) explicit cost
D) operating expense
E) implicit cost

Question 23

If MSC = 20 + 0.75A, where MSC is in millions of dollars, and A is the percentage of mercury emissions abatement, then

A) the total social costs of abatement equal $184 million when A is 8 percent
B) the TSC at an abatement level of 10 percent is $27.5 million
C) a 40 percent abatement level is associated with MSC of $30 million and TSC of 20 million
D) TSC cannot be determined at any abatement level

Question 24

When estimating incremental environmental costs, the survey approach

A) relies on expert knowledge about abatement technology
B) is a more direct means of gathering abatement cost data than the engineering approach
C) finds the level of abatement expenditures based on least-cost technology
D) suffers from no inherent biases associated with polluting sources

Question 25

The social costs associated with some policy initiative are

A) readily identified
B) described as the spending needed to compensate society for the resources used so that its utility level is maintained
C) must account for all price, output, and income effects linked to that initiative
D) all of the above
E) (b) and (c) only

Question 26

Suppose the marginal social cost (MSC) of abatement for particulate matter (PM) is MSC = 8 + 0.5A, where A is percent of PM removed, and MSC is in millions of dollars. Find the change in total social costs (TSC) of abatement if the abatement level increases from 12 percent to 20 percent as a result of new policy.

Question 27

Incremental cost assessment involves

A) valuing TSC at a single level of abatement
B) subtracting baseline TSC prior to undertaking policy from post-policy TSC
C) summing baseline TSC and post-policy TSC
D) finding the ratio of TSC to MSC at a given abatement level

Question 28

Explicit costs include

A) monitoring expenses incurred by the government
B) enforcement costs paid by the public sector
C) compliance costs incurred by all economic sectors
D) all of the above
E) none of the above

Question 29

Which of the following is INCORRECT?

A) Aggregate abatement spending in the U.S. has increased over time
B) Across all economic sectors, business spending on abatement in the United States comprises the highest proportion of aggregate abatement spending
C) Across major industries, spending on waste treatment outweighs spending on recycling
D) The petroleum and coal industry spends less on abatement than any other industry

Question 30

Labor expenditures associated with carrying out an abatement process are considered to be part of

A) capital costs
B) fixed costs
C) operating costs
D) implicit costs
E) none of the above

Question 31

Variable spending arising as part of the operation and maintenance of abatement processes is known as

A) capital costs
B) operating costs
C) fixed costs
D) implicit costs

Question 32

Incremental costs

A) are the total costs of abatement and regulation linked to environmental policy
B) include only explicit costs
C) refer to the change in costs associated with an environmental policy initiative
D) include only implicit costs

Question 33

Assume that the Clean Air Act requires an increase in sulfur dioxide (SO₂) abatement (A) from 50 to 60 percent and that the relevant MSC (in millions) is MSC = 12 + 0.8A, where A is measured in percent. Then, the incremental cost of this policy change is

A) $20 million
B) $60 million
C) $560 million
D) none of the above

Question 34

The engineering approach to estimating incremental environmental costs

A) depends on expert input and is based on least-cost available technology
B) obtains estimates of abatement costs directly from polluting sources
C) relies on surveys to find the implicit costs of pollution abatement
D) is also known as the physical linkage approach

Question 35

Which of the following statements is INCORRECT?

A) The MSC includes the market-level marginal abatement cost and the government's cost of enforcement
B) If the MSC function is known, total social costs at a given abatement level are found as an area under the MSC
C) If the TSC function is known, the marginal social cost of a given abatement level is equal to an area under the TSC
D) The MSC of environmental quality is captured by the supply of environmental quality

Question 36

The marginal social cost (MSC) function is the sum of the following:

A) market-level marginal abatement cost (MAC_mkt) + marginal cost of enforcement (MCE)
B) marginal abatement cost (MAC) + marginal external cost (MEC)
C) marginal abatement cost (MAC) + total social cost (TSC)
D) market-level marginal abatement cost (MAC_mkt) + marginal external cost (MEC)

Question 37

In the auto industry, abatement costs to combat global warming

A) will be unaffected by recent standards on GHG emissions
B) should not affect vehicle prices
C) are expected to raise vehicle prices but these costs should be offset by fuel savings
D) none of the above

Question 38

Implicit costs refer to

A) out-of-pocket expenses
B) all readily identified expenditures
C) incremental costs of policy
D) none of the above

Question 39

If MSC = 20 + 0.75A, where MSC is in millions of dollars, and A is the percentage of mercury emissions abatement, then

A) marginal social cost is $7.5 million when 10 percent of mercury emissions are abated
B) the MSC function graphs with a horizontal intercept of 20
C) MSC equals $35 million if 20 percent of mercury is abated
D) TSC must be declining with higher abatement levels

Question 40

Access the document prepared by the U.S. Census Bureau, Pollution Abatement Costs and Expenditures: 2005, available online at www.census.gov/prod/2008pubs/ma200-05.pdf. Examine the state-level data for total capital and operating abatement costs. Analyze the differences among any subset of states, and offer a hypothesis as to why these differences might exist.