Multiple Choice Questions:
1. An advantage that emission taxes and tradable emissions permits have over compliance standards is that the former
a. Work well even if pollution output cannot be accurately measured.
b. Result in equal levels of pollution abatement across all firms.
c. Make it in the interests of firms to reduce pollution in the most efficient manner possible.
d. Reduce pollution to zero.
2. A transferable pollution right
a. Would command a price of zero in the free market since pollution is “bad” for society.
b. Could never be resold.
c. Gives a firm the right to emit a certain quantity of pollution.
d. Gives a firm the right to emit an unlimited amount of pollution.
3. Which of the following is not an advantage of transferable pollution rights?
a. They create incentives for polluters to develop cheaper ways to reduce pollution.
b. They allow the greatest value of output to be produced with a given amount of pollution.
c. They require polluters to reduce emissions, regardless of the cost.
d. The rights are private property and may be bought or sold freely.
4. Under a system in which the government grants a fixed number of transferable pollution rights, an increase in demand for the output of firms would
a. Decrease the resale price of pollution rights.
b. Increase the resale price of pollution rights.
c. Increase overall pollution levels.
d. Decrease overall pollution levels.
5. Achieving a 25 percent reduction in pollution is likely to be most costly under
a. A system of transferable pollution rights.
b. A compliance standard.
c. A per-unit pollution tax system.
d. Costs are the same under all three pollution control policies.
6. Pollution in a free market is more likely when
a. Property rights are not well-defined.
b. Property rights are difficult to enforce.
c. Transaction costs of negotiating private market solutions are high.
d. Any of the above is true.
7. According to the Coase theorem, one way to deal with an externality problem when transaction costs are low is
a. For the government to impose pollution taxes.
b. For the government to make certain that property rights are well-defined.
c. For the government to issue transferable pollution permits.
d. For the government to impose compliance standards.