EC307

Quiz 2 Sample Questions

16 out these 22 questions will come in Quiz 2

1. A pollution permit trading system

A. is not a market-oriented policy instrument
B. is used to combat acid rain in the United States
C. is not viable on an international level
D. is not capable of achieving a cost-effective solution

2. The marginal social benefit (MSB) of abatement represents

A. the additional gains to society from reducing pollution
B. the reduction in damages from abatement
C. society's demand for abatement or environmental quality
D. all of the above

3. The marginal cost of enforcement (MCE)

A. is the additional cost incurred by government to monitor and enforce abatement
activity.
B. is a negatively sloped function
C. can be measured as the vertical sum of MACmkt and MSC at any abatement level
D. represents the horizontal sum of all polluters’ MAC functions

4. When comparing a permit trading system to the use of a pollution charge

A. a permit trading system requires more government intervention because the
government must determine the permit price
B. a permit trading system is inflexible because the number of permits cannot be
adjusted
C. a pollution charge generates revenue for the government on all units of pollution
not abated
D. pollution charges might create pollution hot spots

5. A benefit-based standard
A. is one that balances social benefits with social costs, at the margin
B. achieves allocative efficiency
C. achieves a cost-effective level of pollution abatement
D. is set to improve society’s well-being without consideration for costs
Suppose that two firms, X and Y, face the following abatement costs:
MACX = 1.2AX, MACY = 0.3AY
2
TACX = 0.6AX TACY = 0.15AY2
Further assume that the combined abatement standard is 40 units for both firms.
Use this model to answer Question 6, 7 and 8

6. Based on this model, if the government uses a uniform standard

A. the total abatement cost for firm X is $24
B. the total abatement cost for firm Y is $12
C. the combined total abatement cost for both firms is $1,200
D. the combined total abatement cost for both firms is $300

7. According to this model, if the government uses a uniform standard

A. firm Y would face a marginal abatement cost that is higher than that for firm Y
B. that standard would achieve a cost-effective solution
C. firm Y should do more of the abating and firm X should do less to move closer to a
cost-effective solution
D. firm X’s marginal abatement cost would be $48, and firm Y’s marginal abatement
cost would be $12

8. Based on the model given, the cost-effective solution would arise if

A. each firm abates 20 units of pollution
B. firm X abates 8 units, and firm Y abates 32 units
C. firm Y does all the abating because its MAC is lower
D. firm X abates 24 units, and firm Y abates 16 units

9. In the multiple-polluter case, each firm faced with an emission charge imposed as a
marginal tax (MT) abates as long as
A. its MAC < MT
B. its MAC > MT
C. its MAC is negatively sloped
D. its TAC are lower than its total tax burden

10. The pollution charge

A. is the most commonly used market-based instrument internationally
B. a government initiative to provide care
C. carried out through environmental awareness
D. effect of sea level rising

11. An emission charge

A. takes advantage of firms’ natural profit incentive
B. cannot achieve a least-cost solution
C. offers no revenue stream to governments
D. has no effect on product pricing
12. The tax imposed on gasoline
A. is an example of a product charge
B. has no effect on consumption
C. is used exclusively in the United States
D. is set at a relatively high rate in the United States

13. A Pigouvian subsidy

A. cannot achieve an efficient outcome
B. is a per-unit payment on a good that is set equal to the marginal external benefit at
QE
C. achieves efficiency as long as it is set equal to the MEC at the competitive output
level
D. lowers the MPB vertically by the amount of the subsidy

14. Per-unit pollution reduction subsidies

A. are implemented by paying a polluter for using a particular type of abatement
equipment
B. can elevate profits, which encourages entry, and hence can perversely increase
aggregate emissions
C. are used exclusively in the United States at the federal level of government
D. are designed to lower the costs of abatement technology

15. According to the model of a deposit-refund system

A. the deposit paid captures the MSC of improper waste disposal (MSCIW)
B. the refund represents the MPB of improper waste disposal (MPBIW)
C. if the deposit is set equal to the MECIW at the competitive equilibrium, the efficient
outcome is achieved
D. the deposit converts the excess amount of illegal waste disposal to legal waste
disposal

16. In a deposit-refund system,

A. the refund component rewards potential polluters for proper disposal or recycling
activity
B. the deposit should be set equal to the MSC of illegal waste disposal to achieve
efficiency
C. monitoring and enforcement costs are higher than if a pollution charge were used
D. actual polluters are not penalized for actions that harm the environment
17. In the multiple-polluter case for a pollution permit system, suppose Firm 1 and Firm 2
face marginal abatement cost functions of MAC1 = 4.5A1 and MAC2 = 2.25A2,
respectively. If the government issues each firm tradeable pollution permits such that
each has to abate 10 units of pollution, then, based on this allocation,
A. the two firms have no incentive to trade
B. firm 1 has an incentive to buy a permit if the price is greater than $45
C. firm 2 has an incentive to buy a permit if the price is below $22.50
D. firm 2 will be willing to sell a permit if the price is above $22.50

18. In the multiple-polluter case for a pollution permit system, suppose two firms, X and Y,
face marginal abatement costs of MACX = 1.2AX and MACY = 0.4AY, respectively. To meet
water quality standards, the government issues each firm pollution permits such that
each firm must abate 20 units of pollution. If permit trading were allowed,
A. firm X would have an incentive to buy a permit as long as the price were less than
$24
B. firm Y would be willing to sell a permit as long as the price were less than $8
C. at a permit price of $22, firm X would have an incentive to buy, but firm Y would
have no incentive to sell
D. no trading would take place because neither firm has an incentive to trade based on
this model

19. The cost savings associated with the cost-effective solution relative to a uniform
standard equals
A. $300
B. $108
C. $10.8
D. $9.60

20. Environmental standards can be specified as

A. freedom standards
B. performance-based standards
C. psychological based standards
D. conventional understanding

21. According to the textbook application about Catano, Puerto Rico, the primary source of
the severe air pollution in that city was identified to be
A. a nearby oil refinery
B. two large electrical power plants
C. large 18-wheelers transporting goods from nearby docks
D. a sewage sludge incinerator
22. In the single-polluter case, suppose a firm faces an emission charge implemented as a
marginal tax (MT) of 12 and that its MAC = 0.8A. Based on this information, the firm
A. is better off paying the tax at abatement levels below 15 units
B. should abate pollution for all abatement levels up to 15 units
C. is better off paying the tax as long as the abatement level is 1.5 units or less
D. better to wait for government assistance through subsidies