SOLVED

11) Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except A) an increase in the equilibrium market price. B) a decrease in the equilibrium quantity produced and consumed. C) a decrease in market supply of the good. D) an increase in the demand for the good. 12) Governments can increase the consumption of a product that creates positive externalities by A) subsidizing the production of the product so that the supply is increased and market price is reduced. B) taxing the production and consumption of the product. C) convincing everyone to consume the good. D) assigning property rights to the producers of the product. 13) Refer to Figure 4-12. One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations. What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits? A) PE B) (PE – PG) C) (PE – PF) D) (PF – PG) 14) Refer to Figure 4-12. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations? A) (PE × QE) B) (PF × QF) C) value equal to the area of FEG D) value equal to the area of QFFGQE 15) Consider the following methods of pollution reduction: a.the government sets a target for maximum emissions b.the government mandates the installation of specific pollution abatement equipment c.the government imposes a per unit tax on the good that creates pollution d.the government gives firms a tax rebate for every unit of pollution abated A) a only B) b only C) a and b only D) a, b, and d only E) a, b, c, and d 16) Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of A) the Pigovian method of pollution control. B) command and control approach to pollution reduction. C) Coasian solution to pollution reduction. D) a tradable emission allowance system of pollution control. 17) What is the rationale behind a marketable emission allowance scheme? A) to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance 18) A major problem with using tradable emissions allowance system to control pollution is A) that it grants firms a license to pollute. B) the difficulty in determining the emissions target. C) it discourages firms from implementing cost-effective pollution control technology. D) that it does not eliminate pollution completely. 19) Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, “For the environmentalist in your life, here’s a gift that is sold by the ton, fits in an envelope and will last forever.” A) The price rises. B) The price falls to zero. C) The price falls but not to zero. D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed. 20) Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause A) consumers to internalize the externality. B) producers to internalize the externality. C) the external cost to drinking soda to become a private cost paid by the government. D) the external cost to drinking soda to become a private cost paid by producers.