DISC: The role of incentives
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
138. Economists generally prefer to deal with emissions of pollutants
a.
with direct controls.
b.
by encouraging people not to pollute.
c.
by subsidizing the installation of pollution-control equipment.
d.
by taxing emissions.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
139. The major problem with direct controls as an environmental protection measure has been
a.
inept administrators.
b.
corrupt judges.
c.
illegal dumping.
d.
legislation with no teeth.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
140. In contrast to the need for legal enforcement under a system of direct controls, a taxes approach
a.
is subject to greater uncertainty of payment of fees.
b.
makes taxes automatic and certain.
c.
speeds the prosecution and conviction process.
d.
does not actually reduce pollution, merely the cost of monitoring it.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
141. Direct controls that impose equal percentage reductions in emissions on all firms in the area
a.
b.
c.
d.
c
Difficult
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
142. Direct controls work if
a.
there is vigilance and enthusiasm in enforcement by the regulatory agency.
b.
speed and rigor are used in the court system in prosecuting cases.
c.
there are significant penalties imposed by the legal system.
d.
All of the above occur.
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
143. Requiring all firms to reduce emissions by the same percentage is
a.
impossible.
b.
inefficient.
c.
inequitable.
d.
unenforceable under the law.
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
144. The reason why cleanup costs are lower for a taxes approach than for a direct controls approach is that
a.
all firms reduce pollution equally and fairly.
b.
firms that are able to clean up at lowest cost do so; others don’t.
c.
large polluters clean up the most, which is always lowest cost.
d.
small polluters clean up the most, which is generally the cheapest.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
145. Pollution taxes are more efficient in cleaning up the environment than direct controls. What role is there for direct
controls?
a.
They are useful standby mechanisms.
b.
They are useful if it is decided to prohibit the substance altogether.
c.
They are useful where dependable metering devices are not available or prohibitively costly to install.
d.
All of the above are true.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
146. The use of pollution charges to reduce pollution confronts the problem of
a.
free riders who avoid revealing benefits from abatement.
b.
determining specific individual damages and appropriate charges associated with pollutants.
c.
necessarily lowering the price of the products.
d.
requiring no agency to administer the tax.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
147. Direct controls are generally much more costly than emissions taxes because
a.
under direct controls emissions cutbacks are usually not apportioned among the firms on the basis of their
ability to reduce pollution cheaply and efficiently.
b.
emissions tax per unit of output is higher than the per-unit direct control program cost.
c.
government cannot legally levy emissions taxes that are as high.
d.
firms disregard emissions taxes.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
148. Direct controls have a clear advantage where
a.
an emission is so dangerous that it is prohibited altogether.
b.
a sudden change in circumstances calls for prompt and substantial change in conduct.
c.
effective and dependable metering devices have not been invented or are prohibitively costly to install and
operate.
d.
All of the above create an advantage.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
149. An advantage emission taxes and permits have over direct controls is that the former
a.
work well even if pollution output cannot be accurately measured.
b.
can respond quickly to new information about the dangers of particular pollutants.
c.
make it in firms’ interests to reduce pollution in the most efficient manner possible.
d.
reduce pollution to zero.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
150. One advantage about an emissions permit system is that
a.
it creates a “license to pollute,” sure to be popular with environmentalists.
b.
it reduces uncertainty about the quantity of pollution that will be emitted.
c.
it is a direct control system and avoids the inefficiencies of a market.
d.
permits can be handed out on the basis of need to protect firms from high costs.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
151. The advantages of emissions permits over taxes is/are:
a.
it reduces undertainty about the quantity of pollution that will be emitted.
b.
environmental authorities decide on an emissions ceiling in advance of issuing permits.
c.
pollutants can be limited to levels which do not affect health.
d.
All of the above are correct.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Basic Approaches to Environmental Policy
152. The cause of the “greenhouse effect” is the
a.
increasing use of glass in construction.
b.
growth of desertification.
c.
burning of “fossil fuels.”
d.
decline in carbon dioxide in the atmosphere.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
153. The “greenhouse effect” is predicted to
a.
lead to the next ice age.
b.
raise global temperature.
c.
pollute the oceans.
d.
break the edifice complex by the turn of the century.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Basic Approaches to Environmental Policy
154. Under EPA regulations, a factory
a.
must pay for the right to pollute.
b.
can increase air pollution from its grinding process if it decreases air pollution from its smelting process.
c.
cannot under any circumstances build a polluting factory in an area where pollution standards are not being
met by existing firms.
d.
None of the above is correct.
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Basic Approaches to Environmental Policy
155. The government prefers a market-based approach to reduce firms’ emissions of a toxic gas but wants to make certain
that no more than 1,000 cubic yards of the gas are ever emitted in a single day. The most efficient policy under these
circumstances is likely to be a system of
a.
per-unit taxes on emissions of the gas.
b.
per-unit taxes on the goods produced by firms that emit the gas.
c.
subsidies to firms that agree not to emit the gas.
d.
sales of permits to emit specified quantities of the gas on specified days.
Difficult
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
156. Which of the following environmental approaches is most appropriate when surveillance and enforcement is
impractical?
a.
direct controls
b.
emissions tax
c.
volunteerism
d.
tradable emission permits
c
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Basic Approaches to Environmental Policy
157. A “backstop resource” is a close substitute for a depletable resource that is available in almost unlimited supply but at
a higher cost. Shale oil is a backstop resource for crude oil. Which of the following statements is correct?
a.
The production of shale oil is likely to increase over time even if crude oil is still available.
b.
Shale oil is unlikely to be produced until all the crude oil has been depleted.
c.
The existence of shale oil as a backstop resource will discourage firms from seeking new reserves of crude oil.
d.
In the future, shale oil is likely to be produced at the same time as crude oil and to sell for a lower price.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Reflective Thinking – BPROG: Analysis
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
158. ____ completely deplete the most vital resources.
a.
We are not going to
b.
In the near future we will
c.
We are eventually going to
d.
We have already begun to
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Reflective Thinking – BPROG: Analysis
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
159. Most prophecies of the imminent exhaustion of many natural resources have not come true because
a.
such resources are generally available in infinite quantities.
b.
rising prices for resources have stimulated supply and encouraged innovation.
c.
the demand for most natural resources has fallen as income levels have increased.
d.
government price floors have prevented resource exhaustion.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Analytic
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
160. Many states charge a 10-cent deposit on every can of soda sold. A purchaser pays an extra 10 cents per can and will
get his money back by returning the empty can to a store. This policy encourages recycling by
a.
increasing the supply of recyclable materials.
b.
shifting in the demand curve for canned soda.
c.
raising the opportunity cost of discarding empty cans.
d.
taxing the production of canned soda.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Reflective Thinking – BPROG: Analysis
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
161. The price of an exhaustible resource sold in a perfectly competitive market in which technology and consumer
preferences do not change over time will tend to
a.
stay constant over time.
b.
always equal the price of the closest substitute for that resource.
c.
fall over time.
d.
rise over time.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Analytic
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
162. How the price of a depletable resource changes over time depends on
a.
how the technology of resource extraction changes.
b.
the interest rate.
c.
how the technologies of production change in firms that use the resource.
d.
All of the above are correct.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Analytic
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
163. The price elasticity of demand for an exhaustible natural resource tends to
a.
fall over time because extraction costs rise over time.
b.
stay constant over time because the resource’s price rises at a constant rate.
c.
rise over time because the resource’s rising price stimulates conservation and the development of substitutes.
d.
rise over time because resource extraction tends to become more efficient over time.
DISC: Elasticity
United States – BPROG: Reflective Thinking – BPROG: Analysis
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
164. The supply curve of a depletable natural resource is usually
a.
downward sloping because the resource runs out over time.
b.
upward sloping because more of the resource can be profitably extracted at higher prices.
c.
upward sloping because the price of the resource rises over time.
d.
vertical because the supply of the resource is fixed.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
165. Which of the following statements is false?
a.
In a competitive market, the price mechanism encourages conservation of a depletable resource.
b.
As the price of a depletable resource rises, its known reserves often increase.
c.
Prices of depletable resources have risen in the twentieth century primarily because resource producers have
exercised monopoly or oligopoly power.
d.
Shortages of depletable resources occur primarily when governments or others interfere with the price
mechanism.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPRPOG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
166. If a resource is in fact becoming scarcer, then one should expect
a.
the price of the resource to rise.
b.
less demand for the resource as people try to conserve.
c.
greater supply as people reduce inventories before it is all gone.
d.
all of the above.
a
Easy
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Analytic
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
167. According to economic theory, under perfect competition, the price of a depletable resource whose costs of
transportation and extraction are negligible
a.
is a poor indicator of scarcity.
b.
must rise at the rate of interest.
c.
will be unable to change to avert running out of it.
d.
is too erratic to allow markets to respond to shortages.
Moderate
DISC: Elasticity
United States – BPROG: Analytic
Elasticity
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
168. Which of the following would not lead to more conservation?
a.
higher prices for a resource
b.
increased interest rates on bonds
c.
public awareness of increasing scarcity
d.
higher taxes on goods produced using the resource
Difficult
DISC: Supply and demand
United States – BPRPOG: Analysis
Supply and demand
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
169. As a resource becomes more scarce, we expect its price to
a.
rise.
b.
fall.
c.
remain constant.
d.
fluctuate wildly.
a
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Analytic
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
170. Under perfect competition the price of a depletable resource whose cost of extraction is not changing must rise at
a.
the same rate as the increase in GDP.
b.
the same rate as the increase in consumer prices.
c.
the same rate as the rate of interest.
d.
a rate higher than the increase in the rate of interest.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
171. If coal prices are rising faster than the rate of interest, then
a.
investors should buy coal instead of bonds.
b.
investors should buy bonds instead of coal.
c.
coal prices should be expected to fall.
d.
bond prices should be expected to rise.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
172. Rising prices help control the process of resource depletion by
a.
discouraging consumption and waste.
b.
stimulating more efficient use of the depletable resource.
c.
encouraging resource-saving innovation.
d.
doing all of the above.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
173. At the interest rate r, the price of a depletable natural resource three years from the present (price in present = P) will
be, everything else being equal, which of the following?
a.
3P
b.
P3
c.
P(1 + r)3
d.
3P(1 + r)3
1
United States – BPRPOG: Analysis
Understanding and applying econo – Understanding and applying economic models
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
174. The deregulation of oil pricing will
a.
increase our dependence on foreign oil.
b.
make the United States energy-independent by the year 2000.
c.
decrease domestic production.
d.
decrease the extent of the nation’s dependence on foreign oil.
d
1
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
175. The supply curve of a natural resource like oil has a positive slope because
a.
the supply becomes closer to exhaustion as demand rises.
b.
it becomes more costly to find and develop supplies as demand rises.
c.
rents rise as output increases.
d.
indirect taxes rise with output.
b
1
DISC: Supply and demand
United States – BPRPOG: Analysis
Supply and demand
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
176. Economists predicted that the price of a depletable natural resource would rise by about 15 percent. Actually the
price fell 10 percent. What most likely happened?
a.
A government subsidy was removed.
b.
Extraction costs increased.
c.
Price controls were suspended.
d.
An unexpected discovery of reserves was made.
DISC: Supply and demand
United States – BPRPOG: Analysis
Supply and demand
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
177. Unregulated markets will tend to
a.
rapidly deplete any natural resource.
b.
naturally conserve any depletable natural resource by pushing up its price every year by a constant dollar
amount.
c.
naturally conserve a depletable resource by pushing up its price at a constant rate every year.
d.
deplete a resource unless new supplies are found.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
178. Among the factors that might lead to a divergence from the path of prices for a depletable resource predicted by the
economic models are: (i) unexpected discoveries of new reserves; (ii) new technologies which reduce extraction costs.
a.
i and ii
b.
i but not ii
c.
ii but not i
d.
neither i nor ii
DISC: Understanding and Applying – DISC: Understanding and Applying Economic
Models
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
179. What is true of depletable resources is that
a.
increasing scarcity leads to their total disappearance.
b.
they are depleted by gradually using up the supply of homogeneous resources, every unit of which is equally
available.
c.
generally the most accessible and cheapest sources are used up so that new supplies become more costly.
d.
their prices must rise at the average rate of inflation.
DISC: Scarcity, tradeoffs, and o – DISC: Scarcity, tradeoffs, and opportunity cost
United States – BPROG: Reflective Thinking – BPROG: Analysis
Scarcity, tradeoffs, and opportu – Scarcity, tradeoffs, and opportunity cost
Economic Analysis: The Free Market and Pricing of Depletable Natural Resources
180. Which of the following could explain a fall over time in the price of the depletable resource aloe?
a.
The productivity of aloe mines fell.
b.
New deposits of aloe were discovered.
c.
Demand for aloe increased over time.
d.
All of the above are correct.
DISC: Supply and demand
United States – BPROG: Reflective Thinking – BPROG: Analysis
Supply and demand
Actual Resource Prices in the Twentieth Century
181. In retaliation for U.S. support for Israel during the Arab-Israeli War, OPEC countries stopped selling oil to the
United States. For the United States, this embargo caused the
a.
demand curve for oil to shift out.
b.
demand curve for oil to shift in.
c.
supply curve of oil to shift out.
d.
supply curve of oil to shift in.
DISC: Supply and demand
United States – BPROG: Reflective Thinking – BPROG: Analysis
Supply and demand
Actual Resource Prices in the Twentieth Century