1. Clicker Quiz

2. Which of the following is a criterion for evaluating environmental policies? a)efficiency b)fairness c)incentives for improvements d)enforceability e)All of the above 1

3. Under a system of negligent liability, a firm disposing hazardous materials into a river would: a) be liable for any damages regardless of the circumstances. b) be liable for any damages only if the firm did not take reasonable steps to avoid damage. c) not be liable for any damages. d) none of the above. 2

4. Private bargaining can lead people to the efficient outcome if a)transactions costs are low and property rights are well defined b)transactions costs are high and property rights are ill defined c)transactions costs are high and property rights are well defined d)transactions costs are low and property rights are ill defined 3

5. Suppose that Madonna wants to dine at a fancy restaurant, but the only available table is in the smoking section. Madonna dislikes the smell of cigarette smoke. He notices that only one person, Snoop Dogg, is smoking in the smoking section. Madonna values the absence of smoke at $15. Snoop Dogg values the ability to smoke in the restaurant at $10. In order for Madonna to pay Snoop Dogg not to smoke, she will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution? a)Snoop Dogg continues to smoke because the cost to Madonna to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15) b)Madonna offers Snoop Dogg between $10 and $15 not to smoke, and she pays the waiter $10. Snoop Dogg accepts, and both parties are better off c)Madonna offers Snoop Dogg between $10 and $15 not to smoke, and she pays the waiter $10. Snoop Dogg declines because he has a right to smoke in the smoking section d)Madonna offers Snoop Dogg $5 not to smoke, and she pays the waiter $10. Snoop Dogg accepts, and both parties are better off 4

6. The two defining features of command-and- control regulation are a)cost-effectiveness and flexible standards b)pollution taxes and marketable permits c)uniform standards and technology- based regulations d)monitoring and compliance 54

7. Emission taxes are generally regarded as efficient since a)they raise the maximum amount of revenue possible for the IRS b)they encourage all pollution sources to completely eliminate their emissions c)they require environmental regulators to know the individual source marginal abatement d)they encourage all pollution sources to adjust their emissions so that the equimarginal principle is satisfied. 6

8. Emission taxes are more likely to be effective when applied to a)nonpoint sources of pollution b)point sources of pollution 7

9. MAC1 represents the existing abatement technology. Suppose the firm is currently emitting the unregulated amount of emissions. The government imposes a pollution tax of $500 per unit. What will total emissions be after the tax is imposed and how much does the firm save by cleaning up? d e 130 MAC 1 MAC 2 17090 $500 c b a $ $2000 $1000 emissions tax f g a)E = 130; $20,000 b)E = 130; $10,000 c)E = 90; $20,000 d)E = 90; $40,000 8

10. MAC1 represents the existing abatement technology. The government imposes a pollution tax of $500 per unit. The firm is currently 130 units of pollution. What is the incentive (cost savings) to adopt the more efficient MAC2 technology? d e 130 MAC 1 MAC 2 17090 $500 c b a $ $2000 $1000 emissions tax f g a)c + d b)c + d + g c)c + d + f d)b + e 9