Undertaking Marginal Analysis of pollution reduction

1. The optimal level of pollution occurs where

a. total benefits of pollution reduction equal to total costs of pollution reduction.

b. marginal benefits of pollution reduction equal the marginal costs of pollution reduction.

c. private costs of pollution reduction are minimized.

d. private benefits of pollution reduction are maximized.

2.  A buyer has purchased four units of good X. The marginal benefit of the fifth unit of X exceeds the marginal cost of the fifth unit of good X. Which of the following reasons explains why the buyer should purchase the fifth unit?

I. The marginal net benefit of the fifth unit is positive.
II. Buying the fifth unit will increase total benefits by more than total costs.
III. Buying the fifth unit will increase total benefits and decrease total costs.

a) I only
b) I and II only
c) II only
d) I, II, III

4. For a pollutant like lead, which causes health effects to local residents even at very low levels, which regulatory approach would be most effective for eliminating any health threats?

a. Emissions standards

b. Tradable permits

c. Pollution taxes

d. Pollution subsidies 

5. A preference for either pollution taxes or marketable permits to regulate pollution is dependent on the relative shape of what two curves?

a. Total cost of damage curve and total cost of pollution reduction curve

b. The marginal cost of pollution reduction curve and the marginal cost of damage curve

c. The marginal revenue of the pollution control curve and the marginal cost of damage curve

d. The marginal benefit of pollution reduction curve and the marginal cost of pollution abatement curve

6. A pollution charge would be preferable to a system of marketable pollution permits when

a. the marginal costs of damages are steep and the marginal costs of pollution reduction are relatively stable

b. the marginal costs of damages are steep and the marginal costs of pollution reduction are steep

c. the marginal costs of damages are relatively stable and the marginal costs of pollution reduction are relatively stable

d. the marginal costs of damages are relatively stable and the marginal costs of pollution reduction are steep

7. If the marginal cost of pollution reduction (abatement) is given by the equation: MC=1.5e, where e = units of pollution reduced by the firm, then the total cost of reducing pollution by 50 units is:

(a) $75
(b) $112.50
(c) $1,875
(d) $3,750

8. In equilibrium, the price of marketable pollution permit in a competitive permit market

(a) is constrained to the amount the government first charged for it.
(b) equals the marginal cost of abatement for all firms.
(c) equals the marginal cost of abatement for the firm with the highest cost, and exceeds the marginal cost of abatement of other firms.
(d) equals the marginal cost of abatement for the firm with the lowest cost, and is less than the marginal cost of abatement of other firms.

9. If a regulator is uncertain about the marginal cost of pollution abatement then using a pollution fee system will be more efficient than the marketable pollution permit system when

a. the marginal social benefit curve is relatively steep and marginal cost turns out to be higher than expected.
b. the marginal social benefit curve is relatively steep and marginal cost turns out to be lower than expected.
c. the marginal social benefit curve is relatively flat and marginal cost turns out to be higher than expected.
d. Both (a) and (b) are correct.

10. Fill in the blank. When a negative externality is present in producing a good or service, ___________ of the good or service will be produced at market equilibrium.

 a. too much

 b. too little

 c. the optimal quantity

d. none

12. From the graph below, which of the following is true when the reduction in sulfur dioxide equals seven tons?

a. The marginal benefit of reducing sulfur dioxide emissions is greater than the marginal cost.

b. Further reductions will make society worse off.

c. The optimal amount of pollution reduction has been found.

d. all of the above

13. From the graph below, how much reduction in sulfur dioxide can be considered economically efficient?

a. 7.0 million tons

b. 8.5 million tons

c. 10.0 million tons

d. all of the above

14. The U.S. Environmental Protection Agency (EPA) values a statistical human life at ______________(in 2006 U.S. dollars).

a. $8.4 million

b. $7.4 million

c. $9.4 million

d. $7.5 million

15. From the graph below, to achieve economic efficiency, what should the magnitude of the arrow in the graph be equal to?

a. the amount of a subsidy

 b. the amount of a tax

c. the amount of a price increase

d. the social benefit of education

11.  If we are considering further reductions in pollution, what rule should we follow to maximize the net benefit to society?

a. The marginal benefit from another ton of reduction should be greater than the marginal cost.

b. The marginal benefit from another ton of reduction should be less than the marginal cost.

c. The marginal benefit from another ton of reduction should be equal to the marginal cost.

d. The marginal benefit from another ton of reduction should equal zero.

3. According to marginal analysis, optimal decision-making involves:

a. Taking actions whenever the marginal benefit is positive.
b. Taking actions only if the marginal cost is zero.
c. Taking actions whenever the marginal benefit exceeds the marginal cost.
d. All of the above.