Question 1

An emissions tax will:
A) ensure that the marginal benefit of pollution is equal for all sources of pollution.
B) set standards to which all producers must adhere,regardless of their production costs.
C) cause all polluters to reduce emissions by the same amount.
D) increase pollution,but not in the most efficient cost-saving way.

Accepted Answer

An emissions tax will ensure that the marginal benefit of pollution is equal for all sources of pollution. This means that all polluters will be forced to consider the cost of their pollution rather than just focusing on production costs. This will encourage polluters to find more efficient and less polluting ways of producing goods and services.

Question 2

The economically efficient level of an externality is zero.

Accepted Answer

The economically efficient level of an externality is not necessarily zero, but rather at a level where the marginal social cost of the externality equals the marginal social benefit. This recognizes that completely eliminating an externality may be more costly than the benefits gained from reducing it to zero, and some level of externality may be acceptable or unavoidable for certain economic activities.

Question 3

Use the following to answer questions :
Figure: Model of a Competitive Market 
-(Figure: Model of a Competitive Market)Use Figure: Model of a Competitive Market.Given the figure,if a tax is imposed on sellers,the equilibrium price will _____ and the equilibrium quantity will _____.
A) increase;decrease
B) remain the same;increase
C) remain the same;decrease
D) increase;increase

Accepted Answer

When a tax is imposed on sellers, the supply curve shifts upward and the equilibrium price increases. However, the quantity demanded decreases as buyers are unwilling to pay the increased price, leading to a decrease in equilibrium quantity. Therefore, the correct choice is A - increase in equilibrium price and decrease in equilibrium quantity.

Question 4

The most economically efficient way to reduce pollution is to impose strict environmental standards on all polluters.

Accepted Answer

Imposing strict environmental standards on all polluters may not be the most economically efficient way to reduce pollution because it does not consider the varying costs of pollution abatement across different sources. Market-based approaches like taxes on pollution or tradable pollution permits can achieve the same environmental goals at a lower overall cost by allowing reductions to occur where they are cheapest.

Question 5

According to the Coase theorem,the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals,provided that the transaction costs of such deals are sufficiently low.

Accepted Answer

The Coase theorem states that in the presence of an externality, efficient outcomes can be achieved through private bargaining, provided that transaction costs are sufficiently low and property rights are clearly defined. Therefore, the statement is true.

Question 6

The total external cost of air pollution in Alberta affects the final price of goods in Alberta,assuming that the government does not intervene in the marketplace.

Accepted Answer

External costs, like air pollution, are not reflected in the market prices of goods unless internalized through government intervention, such as taxes or regulations.

Question 7

Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution.

Accepted Answer

Environmental standards aim to regulate and reduce pollution, not ensure equal marginal benefit of pollution for all sources. The goal is to limit pollution to a level deemed safe for human health and the environment.

Question 8

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost.This is not the case for environmental standards since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

Accepted Answer

Emissions taxes and tradable emissions permits create a market-based incentive for firms to reduce their emissions in the most cost-effective way possible. Environmental standards, on the other hand, simply set a minimum level of required environmental performance and do not take into account differing costs of compliance for different firms. Therefore, emissions taxes and tradable emissions permits are more efficient mechanisms for achieving environmental goals.

Question 9

If externalities are fully internalized,an outcome is efficient,even without government intervention.

Accepted Answer

When externalities are fully internalized, the individuals involved take into account all the costs and benefits of their actions, leading to an efficient outcome without the need for government intervention. This is because the market prices reflect the full social cost and benefit, leading to the right decision-making by all the stakeholders.

Question 10

According to the Coase theorem,only when transaction costs are extremely high can two parties internalize a negative externality.

Accepted Answer

According to the Coase theorem, in the absence of transaction costs, bargaining and negotiation between parties can lead to an efficient outcome regardless of who has property rights. Therefore, parties can internalize a negative externality without the need for government intervention. However, if transaction costs are present, it may be too costly for parties to negotiate and the externality may persist.

Question 11

Taxes on sulphur dioxide emissions,excise taxes on gas,and sales taxes are all examples of Pigouvian taxes.

Accepted Answer

The answer of Taxes on sulphur dioxide emissions,excise taxes on...

Question 12

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming that there are no private costs from pollution to the polluter).

Accepted Answer

The optimal Pigouvian tax is designed to correct for negative externalities, such as pollution, by aligning the private cost of the polluter with the social cost. This is achieved by setting the tax equal to the marginal social cost of pollution at the socially optimal quantity of pollution, which ensures that the polluter bears the full cost of their actions on society. Therefore, the statement is true.

Question 13

Since texting while driving generates a negative externality,banning texting while driving would necessarily be economically efficient.

Accepted Answer

While banning texting while driving addresses the negative externality by potentially reducing accidents, it does not automatically ensure economic efficiency. Economic efficiency involves considering all costs and benefits, including enforcement costs and the impact on individual freedom and convenience.

Question 14

Economists and environmentalists agree that pollution is undesirable and that government policy should aim to achieve a zero-pollution society.

Accepted Answer

While economists and environmentalists agree that pollution is undesirable, achieving a zero-pollution society is often considered impractical or economically unfeasible. Instead, they focus on reducing pollution to acceptable levels or finding a balance between economic growth and environmental protection.

Question 15

The marginal social benefit of pollution is always zero.

Accepted Answer

The marginal social benefit of pollution is not always zero. It is possible for pollution to have some marginal social benefit in certain situations, such as when a factory's emissions help fertilize nearby crops or when pollution from a power plant helps clear smog in a city. However, in most cases, the marginal social cost of pollution outweighs any potential benefits, making it harmful to society as a whole.

Question 16

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.

Accepted Answer

This is the definition of externalities - when the cost or benefit of an individual's actions is borne by someone else without compensation. Therefore, individuals do not have an incentive to consider these costs or benefits in their decision-making.

Question 17

Firms A and B both produce a good whose manufacture causes pollution,but the firms differ in their marginal benefit from pollution.In this case,an emissions standard would:
A) reduce pollution in the most effective manner.
B) lead to an unequal reduction in pollution for both firms.
C) not be efficient since it does not take into account differences in marginal benefits from polluting.
D) be preferred to an emissions tax since it takes into account differences in marginal benefits.

Accepted Answer

An emissions standard would not be efficient since it does not take into account differences in the marginal benefits from polluting between the two firms. This means that one firm might be more heavily impacted by the standard than the other, resulting in an unequal reduction in pollution. A more efficient solution would be to implement an emissions tax, which would allow both firms to choose their optimal level of pollution based on their individual marginal benefits and costs.

Question 18

Pigouvian taxes:
A) tax the profits of polluting firms.
B) are designed to reduce external costs.
C) are essentially the same as emissions standards.
D) are tradable emissions permits.

Accepted Answer

Pigouvian taxes are designed to reduce external costs, also known as negative externalities, by taxing the activity that generates them. This creates an incentive for the polluting firm to reduce their pollution levels or find alternative, less harmful practices. It is different from emissions standards, which are regulations that limit the amount of pollutant emissions allowed from a particular source. Tradable emissions permits, on the other hand, allow firms to buy and sell permits for pollutant emissions, with the idea being that those who can reduce emissions more efficiently will sell to those who cannot.

Question 19

A principal cause of market failure is actions generating side effects on nonmarket participants that are not properly taken into account by the market.

Accepted Answer

This is a commonly recognized cause of market failure, known as externalities. Externalities occur when the actions of buyers or sellers have unintended effects on others outside of the market transaction, leading to market outcomes that do not fully reflect the total social costs or benefits involved.

Question 20

If at the current amount of pollution,its marginal social benefit is greater than its marginal social cost,then there is too little pollution.

Accepted Answer

If the marginal social benefit of pollution exceeds its marginal social cost, it indicates that the additional benefits gained from pollution (such as economic activity) outweigh the additional costs (such as health or environmental damage), suggesting that a higher level of pollution could be socially optimal, or in other words, there is currently too little pollution from a cost-benefit perspective.

Quiz 16: Externalities

An emissions tax will:

The economically efficient level of an externality is zero.

Use the following to answer questions : Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market) Use Figure: Model of a Competitive Market.Given the figure,if a tax is imposed on sellers,the equilibrium price will _ and the equilibrium quantity will _.

The most economically efficient way to reduce pollution is to impose strict environmental standards on all polluters.

According to the Coase theorem,the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals,provided that the transaction costs of such deals are sufficiently low.

The total external cost of air pollution in Alberta affects the final price of goods in Alberta,assuming that the government does not intervene in the marketplace.

Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution.

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost.This is not the case for environmental standards since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

If externalities are fully internalized,an outcome is efficient,even without government intervention.

According to the Coase theorem,only when transaction costs are extremely high can two parties internalize a negative externality.

Taxes on sulphur dioxide emissions,excise taxes on gas,and sales taxes are all examples of Pigouvian taxes.

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming that there are no private costs from pollution to the polluter).

Since texting while driving generates a negative externality,banning texting while driving would necessarily be economically efficient.

Economists and environmentalists agree that pollution is undesirable and that government policy should aim to achieve a zero-pollution society.

The marginal social benefit of pollution is always zero.

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.

Firms A and B both produce a good whose manufacture causes pollution,but the firms differ in their marginal benefit from pollution.In this case,an emissions standard would:

Pigouvian taxes:

A principal cause of market failure is actions generating side effects on nonmarket participants that are not properly taken into account by the market.

If at the current amount of pollution,its marginal social benefit is greater than its marginal social cost,then there is too little pollution.

Quiz 16: Externalities

An emissions tax will:

The economically efficient level of an externality is zero.

Use the following to answer questions : Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market) Use Figure: Model of a Competitive Market.Given the figure,if a tax is imposed on sellers,the equilibrium price will _____ and the equilibrium quantity will _____.

The most economically efficient way to reduce pollution is to impose strict environmental standards on all polluters.

According to the Coase theorem,the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals,provided that the transaction costs of such deals are sufficiently low.

The total external cost of air pollution in Alberta affects the final price of goods in Alberta,assuming that the government does not intervene in the marketplace.

Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution.

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost.This is not the case for environmental standards since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

If externalities are fully internalized,an outcome is efficient,even without government intervention.

According to the Coase theorem,only when transaction costs are extremely high can two parties internalize a negative externality.

Taxes on sulphur dioxide emissions,excise taxes on gas,and sales taxes are all examples of Pigouvian taxes.

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming that there are no private costs from pollution to the polluter).

Since texting while driving generates a negative externality,banning texting while driving would necessarily be economically efficient.

Economists and environmentalists agree that pollution is undesirable and that government policy should aim to achieve a zero-pollution society.

The marginal social benefit of pollution is always zero.

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.

Firms A and B both produce a good whose manufacture causes pollution,but the firms differ in their marginal benefit from pollution.In this case,an emissions standard would:

Pigouvian taxes:

A principal cause of market failure is actions generating side effects on nonmarket participants that are not properly taken into account by the market.

If at the current amount of pollution,its marginal social benefit is greater than its marginal social cost,then there is too little pollution.

Use the following to answer questions : Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market) Use Figure: Model of a Competitive Market.Given the figure,if a tax is imposed on sellers,the equilibrium price will _ and the equilibrium quantity will _.