Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels. This route is often preferred because:
a. c and e.
b. it requires less technological development.
c. it doesn't penalize drivers of clean cars.
d. only car drivers pay for the externality.
e. the cost of the externality is unknown.
QUESTION 2Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:
a. have internalized all costs and benefits.
b. be inefficient.
c. be destroyed.
d. not have failed.
e. be subject to obligatory controls.
QUESTION 3Voluntary recycling is available in many parts of the country. If citizens of these areas have collected recyclable material at home, they can bring it to a recycling center. These materials reduce landfill space, reduce the need for virgin material extraction, and provide an inexpensive input in many production processes. The information in this question suggests what about areas without voluntary recycling?
a. Externalities exist.
b. There is mandatory recycling.
c. Raw materials are less expensive.
d. The cost of production is higher.
e. Nothing.
QUESTION 4Noise pollution is a serious problem. One major contributor is the recent development of very powerful amplification equipment for automobile radios. Many people complain that the windows in their home vibrate when some cars drive by. Others complain that loud car radios set off very sensitive alarms in nearby parked cars. What do we know about the drivers of cars with loud stereos?
a. b, c, and e.
b. It would be very expensive for them to engage in this behavior if individuals had a right to a nonvibrating home.
c. The cost of their own hearing loss is less than the benefit they receive from cranking it up.
d. They realize that there are no ordinances prohibiting loud noise.
e. Their private costs fall short of the social costs.
QUESTION 5Which of the following are not methods of dealing with externalities?
a. Relying on voluntary compliance.
b. Taxing the output of industries that pollute.
c. Creating legal environmental standards.
d. Increasing public spending on cleanup/reduction.
QUESTION 6Which of the following statements is not true?
a. If marginal social cost and marginal private cost are the same, any externality that exists will be positive.
b. If marginal externality costs are not zero, externalities exist.
c. An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium.
d. The existence of pollution as the byproduct of a production or exchange process indicates a market failure.
e. When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level.
QUESTION 7Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete, and the cost of replanting the trees is approximately 10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another 10 per ton the power plant can be outfitted with a pollution control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?
a. Private marginal cost plus the 10 replanting charge.
b. Private marginal cost plus the 10 emission control charge.
c. Only the 20 of replanting and emission control charges, because the other costs are private, not social.
d. Private marginal cost plus the 20 of replanting and emission control charges.
e. In order to answer this question we need to know the dollar value of the pollution.
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