Question : 21) Some policymakers have argue that products like cigarettes, alcohol, : 1245108

21) Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

22) The 2005, 24 European Union nations established a cap-and-trade system which was designed to

A) eliminate air pollution and greenhouse gases by the year 2020.

B) reduce carbon dioxide emissions.

C) provide fast growing developing countries with the technology to reduce their carbon emissions.

D) remove all taxes from polluting industries.

23) Economists working at federal government agencies have estimated that the marginal social cost of carbon is about

A) $2 per ton.

B) $9 per ton.

C) $21 per ton.

D) $47 per ton.

24) The first economist to systematically analyze market failure was

A) Adam Smith.

B) Ronald Coase.

C) A. C. Pigou.

D) J. E. Meade.

25) Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government’s action would

A) externalize the externality.

B) result in a marginal social benefit greater than the marginal cost of the electricity.

C) be an example of supply side economic policy.

D) internalize the externality.

26) Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

A) a transaction cost.

B) a Pigovian tax.

C) a Pigovian subsidy.

D) the Coase Theorem.

Figure 4-23

Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain they overproduce the quantity of electricity. This is illustrated in Figure 4-23.

27) Refer to Figure 4-23. S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production. One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity. What is the size of the Pigovian tax that will internalize the cost of the externality?

A) P0

B) P2-P0

C) P1-P0

D) P2-P1

28) Policies that mandate the installation of specific pollution control devices are called

A) command and control policies.

B) benefit policies.

C) welfare policies.

D) incentive policies.

29) Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

A) Rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution.

B) Imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits.

C) Requiring the installation of specific pollution control devices.

D) Instituting a system of tradable emissions allowances.

Figure 4-24

College education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry. Thus, the social benefits of college education exceed the private benefits for any level of college education. This is illustrated in Figure 4-24.

30) Refer to Figure 4-24. One way to obtain the economically efficient amount of college education is for governments to subsidize college education. What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)

A) P2-P0

B) P2-P1

C) P0-P1

D) P1