Question : 4.5   Government Policies to Deal with Externalities 1) Who was the : 1267061

4.5   Government Policies to Deal with Externalities

1) Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? 

A) Ronald Coase

B) A. C. Pigou

C) Adam Smith

D) David Hume

2) What does the phrase “internalizing an external cost” mean?

A) limiting the extent to which domestic firms can outsource production

B) prohibiting economic activities that create externalities

C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output

D) finding a way to address cross-border pollution

3) Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

A) Does the intervention program reduce pollution to zero using the least costly method?

B) Is the intervention program economically efficient?

C) Does the intervention program make the amount of economic surplus as large as possible?

D) Is the damage to the environment from government intervention as small as possible?

4) If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

A) equal to the marginal external cost at the economically efficient level of pollution.

B) equal to the marginal private cost of production at the economically efficient level of pollution.

C) equal to the amount of the deadweight loss created in the absence of a pollution tax.

D) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

5) An advantage of imposing a tax on the producer that generates pollution is that

A) it forces the polluting producer to internalize the external cost of the pollution.

B) the government can keep tabs on exactly what is produced in an industry.

C) it will eliminate pollution.

D) a producer can pass the cost of the pollution to consumers.

Figure 4-11

Companies producing toilet paper bleach the paper to make it white.  The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 4-11 illustrates the situation in the toilet paper market.

6) Refer to Figure 4-11. The efficient output is

A) Q1.

B) Q2.

C) Q3.

D) Q4.

7) Refer to Figure 4-11. The private profit-maximizing output level is

A) Q1.

B) Q2.

C) Q3.

D) Q4.

8) Refer to Figure 4-11. An efficient way to get the firm to produce the socially optimal output level is

A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce.

B) to impose a tax to make the industry bear the external costs it creates.

C) to grant a subsidy to enable the industry to internalize the external costs of production.

D) to assign property rights to the firms in the industry.

9) Refer to Figure 4-11. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

A) (P2- P1) per ton of output

B) (P2- P0) per ton of output

C) (P1- P0) per ton of output

D) P1 per ton of output

10) Refer to Figure 4-11. Let’s suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper?

A) It rises by $50.

B) It rises by more than $50.

C) It rises by less than $50.

D) It remains the same because the tax is imposed on producers who create the externality.