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University of Colorado at Boulder, Summer 1999, Environmental Economics, Econ 3545

Exam 3



There are 30 multiple choice questions in this test, each worth one point. Attempt all questions.



  • Liability laws may help achieve efficient level of emissions when
  • it is easy to establish a polluting source as the cause of damage.
  • it is easy to estimate the monetary amount of damage.
  • cost of litigation is likely to be small.
  • all of the above are true.
    •
  • According to Coase theorem, well-defined private property rights over an environmental resource leads to efficient level of emissions if property rights are granted to
  • a victim of emissions.
  • a polluter.
  • a third party.
  • any one of the above.
  • Which limits the applicability of Coase theorem to environmental problems?
  • Many polluters and many victims make negotiations between prospective owner(s) and users of an environmental resource expensive.
  • Many environmental resources provide significant nonmarket benefits that are enjoyed by many, beside the owner of the resource.
  • Both of the above limit the applicability of Coase theorem.
  • None of the above limits the applicability of Coase theorem.
  • Efficient use of a privately-owned resource can happen only when all benefits and costs associated with the resource go to the owner only. This characteristics of ownership of a resource is called
  • enforceability.
  • exclusivity.
  • transferability.
  • universality.
  • Between two alternative policies - emission standard and technology standard, which offers more flexibility to sources of pollution to control pollution at a lower cost?
  • Emission standard
  • Technology standard
  • Both of the above
  • None of the above
    •
  • Can the same ambient standard be efficient for both rural and urban areas?
  • Yes, when ambient pollution level is the same in both areas
  • Yes, irrespective of ambient pollution level in the two areas
  • No, because marginal damages are likely to be different in rural and urban areas
  • No, even if marginal damages were the same in rural and urban areas
    •
  • Between two alternative policies - emission standard and emission charge that leads to the same level of emission, which policy would a polluter choose? (Hint: compare compliance costs of the two policies?)
  • Emission standard
  • Emission charge
  • Indifferent between emission standard and emission charge
  • Emission standard in the short run, but emission charge in the long run
  • Which ensures cost effective reduction of emission (i.e., which one satisfies the equimarginal principle)?
  • Uniform emission standard
  • Uniform emission charge
  • Uniform technology standard
  • None of the above
  • Under a single uniform emission charge, how does the total amount of charges collected from sources of pollution compare with the total amount of damages caused by emissions? (Hint: it may be helpful to draw a MAC-MD graph and compare damages to total charges paid under a charge system.)
  • They are equal.
  • Damages exceed the total amount of charges paid.
  • Damages are lower than the total amount of charges paid.
  • Damages may be lower or greater than the total amount of charges paid.
  • A source of pollution that can be easily identified and whose emissions can easily be measured is called a
  • point source.
  • non-point source.
  • measurable source.
  • none of the above.
  • Which is likely to be the least expensive to enforce?
  • Tradable discharge permits
  • Uniform emission charges
  • Uniform emission standards
  • Uniform technology standards
  • Under an uniform emission charge, which is the most likely result? (Hint: you may draw a graph to find emissions of two firms with different MACs, under a given emission charge.)
  • All firms emit the same amount of emissions, irrespective of differences in MAC.
  • Firms with lower MAC emit lower amount of emissions.
  • Firms with lower MAC emit larger amount of emissions.
  • Either b or c.
    •
  • Which does not offer incentive to long-run improvement of abatement technology?
  • Tradable discharge permits
  • Uniform emissions charges
  • Uniform (and stable) emission standards
  • Uniform technology standards
  • Which policy requires prior information on MAC to ensure that a desired level of emissions is met?
  • Tradable discharge permits
  • Uniform emission charges
  • Uniform emission standards
  • None of the above
  • Between tradable discharge permits and an equivalent emission charge, which offers greater incentive to innovation?
  • Tradable discharge permits
  • Emission charge
  • Both provide equal incentive.
  • Both do not provide incentive.
    •
  • For damage assessment, the U.S. Department of Interior recommends estimating loss of extractive and recreational value from injury to an environmental resource. This loss of value is called
  • resource value.
  • restoration value.
  • nonuse value.
  • none of the above.
    •
  • According to the procedure of the U.S. Department of Interior, resource value of an injured resource is $30 million and its restoration value is $26 million. Which value reflects the damage done to the resource?
  • $56 million
  • $30 million
  • $26 million
  • $4 million
  • Under liability laws, who has the burden of proof to establish causal linkage between pollution and damage?
  • Polluter (the defendant)
  • Victim of pollution (the plaintiff)
  • Environmental Protection Agency (EPA)
  • None of the above
  • Zero-risk approach of setting emission standard is to set maximum allowable level of emissions equal to
  • zero.
  • threshold level.
  • uncontrolled level.
  • efficient level.
  • Which is correct?
  • Emission standards provide incentive to innovation when standards are perceived stable.
  • Emission standards may provide perverse incentive when standards are perceived unstable.
  • Both a and b are correct.
  • Both a and b are not correct.
  • Compare emission standard with emission charge. When firms develop a cheaper abatement technology, how would levels of emissions change in two systems?
  • Levels of emissions remain unchanged under both systems.
  • Level of emissions remains unchanged under emission standard, but it decreases under emission charge.
  • Level of emissions decreases under emission standard, but it remains unchanged under emission charge.
  • Levels of emissions decrease under both systems.


    • Table 1

    Level of emissions, tons/week MAC, $ per ton MD, $ per ton
    10 8,000 1,500
    20 5,500 2,000
    30 3,500 3,500
    40 2,000 5,500
    50 1,000 8,500


  • See Table 1. How many permits should be issued for efficient level of emissions? Assume that one permit authorizes the permit holder to emit one ton of emission.
  • 10
  • 20
  • 30
  • 40
  • See Table 1. What should be the emission charge if the desired level of emissions is 20 tons per week?
  • $2,000
  • $3,500
  • $5,500
  • $7,500
  • 1972 Water Pollution Control Act provided for uniform technology-based effluent standards to control effluents from an industry. In terms of effects on effluent reduction and incentives to innovation, technology-based effluent standards are similar to
  • technology standards.
  • emission standards.
  • emission charges.
  • tradable discharge permits.
  • Which is a possible reason behind unsatisfactory performance of Fox River BOD discharge trading permits program implemented in Wisconsin?
  • Limited tenure (5 years) of property rights over permits
  • High transaction cost due to mandatory approval process
  • Oligopoly nature of permit market (noncompetitive market)
  • All of the above
  • 1977 Amendments to Air Quality Act specified different emission standards for different regions. As an economist, would you support regional standards as opposed to a single national standard?
  • Yes, because regions differ in marginal damages from the same level of pollution.
  • Yes, because jobs of many more workers are affected in urban areas, as opposed to rural areas.
  • Yes, because standards need to be more stringent in rural areas to prevent deterioration of their environmental quality.
  • No, because all regions should be treated similarly, irrespective of potential damages from pollution.
  • Emission reduction credit (ERC) program
  • is likely to increase total emissions from existing sources of pollution.
  • is likely to achieve emission reduction at a lower cost.
  • is likely to achieve efficient level of emissions.
  • is likely to do none of the above.
  • When is tradable discharge permits preferable to emission charges to control emissions from an industry?
  • Only a few polluters (potential permit holders) in the industry
  • Need to ensure that a desired level of total emissions is met
  • Complete information available on MAC
  • Complete information available on MD
    •
  • When is tradable discharge permits not preferable to emission charges to control emissions from an industry?
  • Only a few polluters (few permit holders) in the industry
  • Need to ensure that a desired level of total emissions is met
  • Complete information available on MAC
  • Complete information available on MD
    •
  • If emission charge is $20 per ton of emission, which would determine the level of emissions from a firm?
  • Where MAC=MD
  • Where MAC=$20 per ton
  • Where MD=$20 per ton
  • Where MAC-MD=$20 per ton


    • Answer Key



    1d 4b 7a 10a 13d 16a 19b 22c 25d 28b
    2d 5a 8b 11d 14b 17c 20c 23c 26a 29a
    3c 6c 9c 12b 15c 18b 21b 24a 27b 30b