Self Test
Energy and Optimal Pollution
Created by Sami Kamel, Alex Lombardia, Harianto
Tarigan,
Serhat Altun, Greta Goto, Tyler Hodge,
Click
on True or False to test your knowledge of the chapter.
1. True False In the combustion of methane gas, the only two elements released are energy and carbon dioxide.
2. True False. Sulfur dioxide (SO2), which is released from the combustion of some hydrocarbons, reacts with water and oxygen in the atmosphere, forming sulfurous and sulfuric acid (H2SO3 and H2SO4) and returns to the earth’s surface in precipitation called “acid rain”.
3. True False The only pollutant released in the combustion of hydrocarbon fuels is CO2.
4. True False There is a positive relationship between the amount of carbon in the hydrocarbon molecules, the state of the hydrocarbon compound (gaseous, liquid or solid), the energy content, and the amount of carbon emissions.
5. True False. Many corporations endorse a set of environmental principles called CERES after the Coalition for Environmentally Responsible Economies.
6. True False. The pollution generated by energy production is called an externality because it is released to the external environment.
7. True False Externalities are always negative.
8 True
False. If we can internalize an externality through
taxation, we will attain the social optimum amount of energy production and the
social optimum amount of pollution.
9 True False. According to Coase, zero transaction costs are required for a market to achieve an optimal level of pollution.
10. True False A tax on
pollution is a form of “command and control” policy.
11. True False. Having the victims of pollution pay to clean up is encouraged by economists because they are more likely to understand the true damages and it is more likely to result in a social optimum.
12. True False Uniform pollution regulation standards assume that pollution costs and benefits are the same for all regions.
13. True False. A method of marketable permits is preferred by economists because it allows the market to allocate the resources more efficiently.
14. True False A system of tradable permits has yet to be successfully implemented in the energy sector.
15. True False. There are direct and indirect methods of measuring non-market costs caused by pollution.
16. True False. If a cement factory is polluting the air as a result of its industrial processes, the social marginal cost will have no relationship to the private marginal cost.
17. True
False If the total cost of pollution is TC =
(1/2)P2 and the total benefits of pollution are TB = 21P – 0.5P2, the optimal level of
pollution is 14.
18. True False. For a uranium mill that is polluting the environment, subsidizing the consumption of uranium, so they have the money to clean up, is an incentive to reduce the negative externality of the pollution.
19. True False To reach an economically efficient output level of a good, the size of an excise tax imposed by the government on the firm producing a good which causes pollution should be equal to the difference between the social marginal cost and the firm’s marginal cost.
20. True False It is difficult to measure the costs of externalities.
21. True False. Dispatch curves which are used to determine which power plants will be allowed to operate takes into consideration the environmental efficiency associated with each facility.
22. True False. If energy production is causing pollution where supply is equal to Qs = -5 + 8P and demand is equal to Qd = 6 - 2P and external costs are 0.30 per BTU, market price and quantity would be Q = 3.8, and P = 1.1; and optimal social price and quantity would be Q = 3.875, and P = 0.95.
23. True False If energy consumption is causing pollution where supply is equal to Qs = -5 + 8P and demand equal Qd = 6 - 2P and external costs are 0.30 per gallon, market price and quantity would be Q = 3.8, and P = 1.1; an optimal social price and quantity would be Q = 3.875, and P = 0.95.
24. True False An externality between two firms can be internalized if the marginal costs for both firms are equal.
25. True False Suppose
marginal costs of pollution in
MCD =
0 for Q < 7.5
MCD =
-15 + 2Q for Q > 7.5
Similarly,
marginal costs of pollution in Golden are
MCG =
0 for Q < 12
MCG =
-12 + Q for > 12
Let
the marginal benefits of pollution be the same in both places
MB = 30 – Q.
The
optimal pollution levels in
26. True False. Again assume marginal costs of pollution in
MCD
= 0
for Q < 7
MCD =
-15 + 2Q for Q > 7
MCG
= 0 for Q < 12
MCG =
-12 + Q for > 12
and
the marginal benefits of pollution are the same in both places
MB = 30 – Q.
The total social losses will be 80 if the environmental protection agency, EPA, sets the standard at 18 in both places.
27. True False There
are two ways to get to a socially optimal level of pollution, that is to set
"a tax for pollution” or to set “a pollution standard”. Economists often tend to favor setting
"a tax for pollution”.
28. True False. The value of life can be measured by the implicit value people place on their lives in the market place. For example, suppose Carol was willing to increase the risk of her death in a particular year by 1 in 10,000 for a $500 increase in annual salary. The value she implicitly gives to her life is $ 5,000,000.
29. True False. Suppose that marginal pollution costs are uncertain. When the slope of the marginal benefits curve increases, the social losses from a standard under uncertain marginal pollution cost would increase.
30. True False. Both costs and benefits of CO2 abatement are uncertain MB1 = 50 - 0.3A MB2 = 100 - 0.8A the first has a 60% probability and the second has 40% probability. MC1 = 20 + 0.1A. MC2 = 10 + 0.15A. MC3 = 30 + 0.2A. Their separate probabilities are 0.3, 0.2, and 0.5. The optimal level of abatement is 78.79.
31. True False. Generally speaking, when the marginal benefit of
pollution is uncertain and the marginal cost of pollution is flat, a ‘pollution
charge’ is a better policy than a standard for reducing possible social losses.
When marginal cost is steep, setting a standard is a better policy for reducing
possible social losses.
32. True False. If
two firms have MB from pollution of MB1=20-Qp and MB2 = 10-1/4Qp, the
unregulated Qp will be 60 units of pollution.
33. True False. (From the previous question). If the EPA
decides they want to reduce pollution to Qp total =50, and they limit each firm
to 25 units, the pollution emitted by each firm will be 25 for a total of 50.
34. True False. In the above question, the EPA caves in to
political pressure and issues 50 tradable pollution permits. This results in a
more economically efficient distribution of benefits, but also results in more
pollution.
35. True False. A country is faced with the problem of abating pollution. Its marginal benefit curve is MB = 65 – A. There are three different abatement costs scenarios:
MC1 = 5 + (1/10)A with 55% probability;
MC2 = 10 + (1/8)A with 15% probability;
MC3 = 7 + (1/9)A.
The expected marginal cost is E[MC] = 6.35 + 0.107A.
36. True False If the marginal benefits of abatement is MB = 65 – A and the expected marginal cost of abatement is E(MC) = 6.35+ 0.107A. Then the expected socially optimal pollution abatement will be 52.98
37. True False Suppose there are two refineries in a particular country. The government wants to reduce the emissions of volatile organic compounds (VOCs) by 20. The marginal cost of abatement for refinery 1 is 9A1 and the marginal cost of abatement for firm 2 is 3A2. Then the optimal level of abatement for A1 is 5 and for A2 is 15.