Question : 81) Refer to Figure 17-5. Suppose Firm 1 and Firm : 1384325

81) Refer to Figure 17-5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions,

A) each firm would abate to Q3.

B) each firm would abate to the same level.

C) Firm 1 would increase abatement beyond Q3 and Firm 2 would abate less than Q3.

D) Firm 2 would increase abatement beyond Q3 and Firm 1 would abate less than Q3.

E) the level of pollution would be optimal.

82) Refer to Figure 17-5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions, and this tax rate was known to equal the social marginal cost of pollution, then we can predict with confidence that

A) each firm would abate to Q3.

B) each firm would abate to the same level.

C) the resulting level of pollution would be optimal.

D) Firm 2 would increase abatement beyond Q3 and Firm 1 would abate less than Q3.

E) Firm 2 would increase its emissions and this would not be socially optimal.

83) Refer to Figure 17-5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposes an emissions tax of $20 per unit of emissions,

A) Firm 1 will abate less than Q3, and Firm 2 will not abate any pollution at all.

B) neither firm will abate any pollution.

C) the level of pollution abatement will be optimal.

D) Firm 1 will increase abatement beyond Q3 and Firm 2 will abate less than Q3.

E) Firm 1 and Firm 2 will each increase abatement beyond Q3.

84) Suppose the government imposes an emissions tax of $t on each unit of pollution produced by a firm. Under which of the following circumstances would the tax rate be set too high to achieve allocative efficiency?

A) the firm could not afford to pay the tax

B) the tax rate causes the firm’s ATC curve to shift up

C) the tax rate is less than the marginal external cost of the pollution

D) the tax rate is greater than the firm’s private marginal cost of production

E) the tax rate is greater than the marginal external cost of the pollution

85) An emissions tax (imposed on each unit of pollution produced) that is set too high to achieve allocative efficiency will cause

A) too few resources to be devoted to pollution abatement and too little of the product to be produced.

B) too few resources to be devoted to pollution abatement and too much of the product to be produced.

C) no change in the polluting firm’s behaviour.

D) too many resources to be devoted to pollution abatement and too little of the product to be produced.

E) new firms to enter the industry.

86) A paper mill discharges chemicals into a river which washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 – 0.5Q. What level of emissions tax (dollars per unit of output produced) would provide the paper mill with the incentive to produce at the allocatively efficient level of output?

A) 5

B) 10

C) 15

D) 20

E) 25

87) Suppose a firm producing roof shingles imposes a negative externality on the surrounding area due to the noxious fumes emitted from the plant. The private marginal cost, social marginal cost and marginal benefit associated with the production of the shingles are given by the following equations:

A) $15

B) $25

C) $10

D) $40

E) $30

88) Given that different firms typically have different costs of pollution reduction,

A) tradable pollution permits will help to reduce the total costs of pollution abatement.

B) tradable pollution permits will help to reduce the marginal costs of pollution.

C) it is clear that only a moral solution can actually achieve pollution reduction.

D) there is a role for government to establish absolute limits on pollution.

E) the optimal emissions tax is thus easier to compute.

89) One promising strategy for efficiently addressing the market failure that leads to environmental pollution is

A) to develop widespread direct pollution controls.

B) the introduction by government of tradable pollution permits.

C) forcing polluters to clean up polluted water, earth, and air.

D) government legislation banning pollution.

E) the elimination of government involvement.

90) As a method of pollution control, tradable emissions permits, or “cap and trade,”

A) are an example of paternalistic social regulation.

B) allow pollution to continue unabated, but only at a huge price to polluting firms.

C) are more effective than emissions taxes when pollution is hard to measure.

D) have the advantage of decentralized decision making (like emissions taxes) while also setting the maximum permissible level of pollution (like direct controls).

E) are not a morally acceptable method of pollution control.