93. Taxes that are enacted to mitigate the effects of negative externalities are sometimes called
a.
control taxes.
b.
command levies.
c.
Pigovian taxes.
d.
Marshallian taxes.
94. Which of the following statements is true of both pollution permits and corrective taxes?
a.
b.
c.
d.
Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution
and P represents the price of pollution.
95. Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?
a.
“Demand for clean air”
b.
“Demand for pollution rights”
c.
“Supply of pollution permits”
d.
“Tax paid to government”
96. Refer to Figure 10-18. The line labeled “Corrective tax” could accurately be re-labeled as
a.
“Demand for clean air.”
b.
“Demand for pollution rights.”
c.
“Price of pollution.”
d.
“Rate of subsidy.”
97. Refer to Figure 10-18. The tax depicted on the graph
a.
gives polluting firms an incentive to develop cleaner technologies.
b.
is viewed by most economists as less effective than a command-and-control policy as a means of reducing
pollution.
c.
has the effect of moving the allocation of resources further from the social optimum than it would be in the
absence of the tax.
d.
All of the above are correct.
98. The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer
positive externalities on Firm A. If the two firms merged, then
a.
their respective markets would move closer to the social optimum.
b.
their respective markets would move further away from the social optimum.
c.
total surplus in their respective markets would decrease.
d.
the merger would serve as an example of a misguided public policy toward externalities.
99. The tax on gasoline
a.
reduces efficiency by causing large deadweight losses.
b.
reduces efficiency by decreasing consumer surplus and producer surplus.
c.
enhances efficiency by serving as a corrective device in a market with positive externalities.
d.
enhances efficiency by serving as a corrective device in a market with negative externalities.
100. Which of the following policies is an example of a command-and-control policy?
a.
subsidies to education
b.
maximum levels of pollution that factories may emit
c.
tradable pollution permits
d.
None of the above is an example of a command-and-control policy.
101. Which of the following statements is correct about a market in which pollution is emitted?
a.
Both corrective taxes and pollution permits internalize the externality of pollution.
b.
Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that
externality.
c.
Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality.
d.
Neither corrective taxes nor pollution permits internalize the externality of pollution.
102. Which of the following statements is correct about a market in which pollution is emitted?
a.
Both corrective taxes and pollution permits move the market toward the social optimum.
b.
Corrective taxes move the market toward the social optimum, but pollution permits do not move the market
toward the social optimum.
c.
Pollution permits move the market toward the social optimum, but corrective taxes do not move the market
toward the social optimum.
d.
Neither corrective taxes nor pollution permits move the market toward the social optimum.
Figure 10–19
103. Refer to Figure 10–19. Which of the following decreases as the quantity of the good is increased?
a.
the private cost of the good
b.
the social cost of the good
c.
the private value of the good
d.
the external benefit of the good
104. Refer to Figure 10–19. Each additional unit of the good that is produced yields an external
a.
benefit of $15.
b.
benefit of $36.
c.
cost of $15.
d.
cost of $36.
105. Refer to Figure 10–19. Each additional unit of the good that is produced yields an external benefit of
a.
$15.
b.
$23.
c.
$36.
d.
$89.
106. Refer to Figure 10–19. Note that the lines labeled “Demand” and “Social Value”are parallel. Also, the slopes of the
lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional
unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is
produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by
a.
$28.00.
b.
$31.40.
c.
$33.60.
d.
$36.00.
107. Refer to Figure 10–19. Note that the lines labeled “Demand” and “Social Value”are parallel. Also, the slopes of the
lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional
unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is
produced. Thus, when the 74th unit of the good is produced and consumed, social well-being
a.
decreases by $2.40.
b.
decreases by $1.60.
c.
increases by $1.00.
d.
increases by $1.40.
108. Refer to Figure 10–19. The socially optimal quantity of output is
a.
58 units.
b.
73 units.
c.
between 73 and 94 units.
d.
94 units.
109. Refer to Figure 10–19. How many units of the good are produced in a market equilibrium?
a.
fewer than 58
b.
58
c.
73
d.
94
110. Refer to Figure 10–19. The social optimum can be reached if
a.
a subsidy of $36 is applied to each unit of the good.
b.
a subsidy of $23 is applied to each unit of the good.
c.
a tax of $23 is applied to each unit of the good.
d.
a tax of $15 is applied to each unit of the good.
111. The gasoline tax
a.
is similar to most other taxes in that it causes deadweight losses.
b.
produces the unfortunate side-effect of making the roads more dangerous.
c.
can be viewed as a corrective tax aimed at multiple negative externalities associated with driving.
d.
can be viewed as a command-and-control policy aimed at discouraging people from driving.
112. To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:
a.
Trade can make everyone better off.
b.
People face trade-offs.
c.
Markets are usually a good way to organize economic activity.
d.
A country’s standard of living depends on its ability to produce goods and services.
113. If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then
that objective could be achieved by
a.
a corrective tax, but not by regulation.
b.
regulation, but not by a corrective tax.
c.
either regulation or a corrective tax.
d.
neither regulation nor a corrective tax.
114. In terms of their economic effects, which of the following policies toward pollution are most similar to one another?
a.
regulation and corrective taxes
b.
regulation and tradable pollution permits
c.
corrective taxes and tradable pollution permits
d.
All of these policies produce the same economic effects.
Figure 10-20.
115. Refer to Figure 10–20. The graph depicts the market for fertilizer. This market would benefit from a
a.
subsidy on fertilizer equal to $100.
b.
tax on fertilizer equal to $100.
c.
tax on fertilizer equal to $50.
d.
subsidy on fertilizer equal to $50.
116. The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of
a.
a corrective tax.
b.
a corrective subsidy.
c.
a command-and-control policy.
d.
the Coase Theorem.
117. A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain
barrels provide an external benefit to the community through water conservation. What can the government do to equate
the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels?
a.
impose a tax on rain barrels that is equal to the per-unit externality
b.
offer a subsidy on rain barrels that is equal to the per-unit externality
c.
encourage homeowners to bargain with rain barrel producers
d.
nothing
118. A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain
barrels provide an external benefit to the community through water conservation. If the government offers a per unit
subsidy on rain barrels equal to the per-unit externality, then
a.
the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain
barrels.
b.
the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain
barrels.
c.
the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.
d.
market incentives will be distorted and move the allocation of resources away from the social optimum.
119. Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has
decided to require a permit for each ton of manure applied. The government gives each farmer 50 tradeable permits.
Farmer A incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of
manure he does not apply. After permit trading, we would expect that
a.
farmer A will no longer apply manure, and farmer B will not reduce his manure application at all.
b.
farmer B will no longer apply manure, and farmer A will not reduce his manure application at all.
c.
farmer A and B will each apply 50 tons of manure.
d.
farmer A will apply 25 tons of manure, and farmer B will apply 50 tons of manure.
120. Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has
decided to require a permit for each ton of manure applied. The government gives each farmer 50 permits. Farmer A
incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of manure
he does not apply. What is the total cost of reducing runoff if firms are not allowed to buy and sell permits from each
other? What is the total cost of reducing runoff if the firms are allowed to buy and sell permits from each other?
a.
$3,750; $2,500
b.
$2,500; $3,750
c.
$5,000; $2,500
d.
$3,750; $3,750