1) A pollution tax will: Select one: a. always be paid entirely by producers. b.

Question

1) A pollution tax will:

Select one: a. always be paid entirely by producers. b. not change the price buyers pay for a good. c. be shared between buyers and sellers.

2) As compared to a pollution tax, a command-and-control policy will increase production costs by a ________ amount and increase equilibrium price by a ________ amount.

Select one: a. larger; larger b. larger; smaller c. smaller; smaller

3) If technological advancements reduce the cost of pollution abatement, all else equal:

Select one: a. the price of a pollution permit will fall. b. the price of a pollution permit will increase. c. the government will be forced to issue fewer permits.

4) Market failure is a situation in which:

Select one: a. production generates costs that are not paid for by the producer. b. purchasers cannot afford the goods that they need. c. the government intervenes in the market.

5) Recall the Application about the external cost of young drivers to answer the following question(s). Recall the Application. A uniform vehicle mileage traveled tax will reduce the externalities associated with automobile accidents by:

Select one: a. reducing miles driven and thus accidents. b. encouraging good drivers to drive more. c. discouraging bad drivers from driving.

6) Suppose an oil refinery and a paper mill both pollute a river. Under a system of marketable pollution permits, which of the following must be true in order for both companies to benefit from trading the right to pollute?

Select one: a. They must be able to reduce pollution at exactly the same cost. b. It must cost the firms different amounts to reduce pollution. c. The government must direct them toward beneficial trades.

7) Suppose two firms operate under a system of marketable pollution permits. If it costs firm A $25 to reduce pollution by 1,000 units per day, and firm B can reduce costs by $35 by increasing pollution by 1,000 units per day:

Select one: a. the firms cannot gain by trading the right to pollute. b. both firms can benefit if firm A trades the right to pollute 1,000 units to firm B for $30. c. both firms can benefit if firm B trades the right to pollute 1,000 units to firm A for $30.

8) The reason that air and water pollution impose external costs is that:

Select one: a. providers of goods and services ignore costs that they do not have to pay. b. they affect the quality of the out-of-doors. c. the damage from pollution crosses international boundaries.

Explanation / Answer

1. a. always be paid entirely by producers.

it will reduce environmental harmin least costly way by encouraging changes in behavior of firms, organisations, households, individuals etc.it gives a clear indication to teh producers to reduce the emission.

2. b. larger; smaller

command and control policy will be definitely higher than pollution tax in terms of increasing cost however it will be smaller impact in price equilibrium.

3. c. the government will be forced to issue fewer permits.

it will help the govet to reduce its strict control on pollution reduction. no of permits will go down with impact on teh procucers who have to keep equal to their emissions

4. c. the government intervenes in the market.

It is the worst case when govt has to pip in to control things. If market does not function properly the govt has to intervene to make it function rightly

5. c. discouraging bad drivers from driving.

a good system throws out bad rodden apples. same as here where all eh bad drivers will be forced to be out from system.

6. a. They must be able to reduce pollution at exactly the same cost.

this is basic rule for any pollution producers. it has maintain the balance with costs it incurs by pollution.

7. b. both firms can benefit if firm A trades the right to pollute 1,000 units to firm B for $30.

this i she equilibrium price and solution to get it in place for both the players

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