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Exam 16: External Costs and Environmental Policy

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Question 21

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One advantage of pollution permits over pollution taxes is:

A) pollution permits allow firms to choose their profit-maximizing level of pollution while taxes do not.
B) pollution permits generate more revenue for the government than do pollution taxes.
C) the government can set a maximum level of pollution using pollution permits.
D) none of the above.

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Question 22

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Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.For Producer Y,the marginal cost of reducing waste from 500 gallons to 400 gallons is:

A) $800.
B) $50.
C) $100.
D) $850.

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Question 23

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If a producer is imposing an external cost on society,the best response would be to:

A company earns $70,000 in profit if it is allowed to dump untreated waste in the river and only $40,000 in profit if it is forced to treat the waste before dumping it into the river.The local fishermen earn $35,000 in profit if the river is polluted and $55,000 in profit if the river is not polluted.The fishermen would be willing to pay the company up to ________ not to pollute the river,and the company would be willing to accept a minimum of ________ if it agrees not to pollute the river.

A tax on the likelihood of being in a collision will help internalize the external costs of collisions.

Comment on the following statement: "When an external cost is present,and a firm does not factor this cost into its decisions,the firm is likely to produce a level of output that is lower than the efficient level."

Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.The marginal cost of reducing waste:

The Clean Air Act of 1990 established a system of marketable pollution permits for SO₂.

Which of the following is the regulation that the U.S.currently use to regulate automobile pollution?

Table 16.1 -Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.The government in the area has created a set of pollution permits.Each permit allows a producer to dump 100 gallons of waste.If the government issues an equal number of pollution permits to each producer:

Command-and-control policies mandate:

Jason and Lauren live in the countryside 30 minutes from a main city in Virginia.They moved there because they wanted to enjoy the fresh air.After a year of living in their house,the 200 acres that surround their neighbor were zoned for an industrial property.A paper mill was built in the zoning and now emits strong gases that can be smelt from miles away,the paper mill's emission of gases are an example of a (an) :

Firms that can reduce pollution at a low cost will be willing to sell their pollution permits.

Which of the following is an external cost generated by the use of automobiles?

The ability of marketable pollution permits to efficiently lower the level of pollution is dependent on the initial allocation of the permits.

The primary source of smog-causing pollutants is:

What is the greatest difficulty associated with using a tax to correct for an external cost? Explain.

When the government taxes a firm that generates an external cost,the profit maximizing firm will produce:

Give an example of an external cost and explain why the outcome is inefficient.

A command-and-control policy causes firms to use inefficient abatement technologies,so production costs will be higher than they would be under a pollution tax.