8 Student: ___________________________________________________________________________
1.
Illegal roadside dumping resulting resulting from the introduction introduction of waste waste disposal disposal charges charges is is one example of the ________ of an environmental policy. A. pollution control cost B. enforcement cost C. unintended consequences D. before/after result
2.
Resources devoted to monitoring monitoring the behaviour behaviour of firms, firms, agencies, and individuals individuals subject to environmental regulations are called ________. A. abatement costs B. enforcement costs C. private costs D. environmental costs
3.
In the following following figure, figure, the social opportunity opportunity cost of reducing reducing 40 units of emissions emissions is is equal to ________.
A. B. C. D.
$100 $800 $900 $1,600
4.
Suppose a manufacturing manufacturing firm that is about to to be regulated faces the the following following actual and potential potential production costs: 1) $4,000 before regulation; 2) $4,550 in the future without the regulation; and 3) $5,200 in the future with the regulation. The true cost of the proposed regulation is ________. A. $550 B. $1,200 C. $650 D. impossible to determine from the information provided.
5.
Suppose a manufacturing manufacturing firm that is about to to be regulated faces the the following following actual and potential potential production costs: 1) $2,500 before regulation; 2) $2,925 in the future without the regulation; and 3) $3,240 in the future with the regulation. The before/after cost of the regulation is ________ and the with/ without cost of the regulation is ________. A. $425; $740 $740 B. $425; $315 C. $740; $315 D. $315; $425 $425
6.
A city is evaluating evaluating a proposal to build a recycling recycling depot. If a generous generous citizen citizen is willing to donate land for the project with a current market value of $800,000, the ________ of the land is ________. A. social opportunity cost; $0 B. social opportunity cost; unknown C. private cost to the city; $800,000 D. social opportunity cost; $800,000
7.
The social social opport opportunit unity y cost of a new envir environme onmental ntal regula regulation tion shoul should d include include the cost cost of enforcement. True False
8.
Suppose a manufacturing manufacturing firm that is about to to be regulated faces the the following following actual and potential potential production costs: 1) $500 before regulation; 2) $630 in the future without the regulation; and 3) $700 in the future with the regulation. The true cost of the proposed regulation is $200. True False
9.
If a firm goes out out of business because an environmental environmental regulation regulation now requires them to incur incur pollutionpollutioncontrol costs that they were previously getting for free (at society's expense), society will be better off to have the polluter exit the industry. True False
10. When evaluating evaluating proposals proposals for building a new new sewage treatment treatment plant, plant, a cost-benefit cost-benefit analysis analysis does not have to include the cost of the land if it is to be donated. True False 11. When environmental environmental regulation regulation of an entire industry results results in output adjustments, adjustments, the social cost of the regulation can be measured by the changes in consumer and producer surpluses. True False 12. When supply and and demand are linear linear curves, the the incidence of the the tax depends on the the slopes of the demand demand and supply curves. True False 13. Consider the following following illustrative illustrative numbers, numbers, applying to a manufacturing manufacturing firm for which which a pollutioncontrol regulation has been proposed:
Determine the before/after costs of the regulation and the with/without costs of the regulation. Which of these two costs best reflects the true cost of the regulation?
14. A region is considering considering two two sites on which to to locate a new wastewater wastewater treatment treatment plant. plant. Site A has been owned by the region for five years and the region initially paid $200,000 for the land. The current market value of the site is $400,000. Site B is land the region would have to purchase for $300,000. What is the social opportunity cost of each site? Based on this, which site should they choose?
15. Suppose an industry industry facing an an inverse demand demand equation equal equal to P = 120 - 4Q faces faces a new pollution pollution control law that shifts its constant marginal cost of production from C1 = 50 to C2 = 68. Compute the social costs of regulation in this industry.
16. Suppose an industry industry facing an an inverse demand demand equation equal equal to P = 250 - 2.5Q faces faces a new pollution pollution control law that shifts its constant marginal cost of production from C1 = 25 to C2 = 50. Compute the social costs of regulation in this industry.
17. Suppose an industry industry facing an an inverse demand demand equation equal equal to P = 400 - 0.5Q faces faces a new pollution pollution control law that shifts its constant marginal cost of production from C1 = 80 to C2 = 100. Compute the social costs of regulation in this industry.
The following equations represent the inverse supply and demand functions in the market for Good A: PC = 80 - ½ QD PP = 14 + QS where PC and PP are the prices paid by consumers and received by producers respectively. QD and QS are the quantities demanded and supplied, respectively.
18. Suppose the government government imposes imposes a tax of $6 per unit unit of Good A. What What is the incidence incidence of this tax on consumers and producers?
19. Suppose the government government imposes imposes a tax of $12 per unit unit of Good A. What What is the incidence incidence of this tax on consumers and producers?
The following equations represent the inverse supply and demand functions in the market for Good B: PC = 180 - 2QD PP = 40 + 2QS where PC and PP are the prices paid by consumers and received by producers respectively. QD and QS are the quantities demanded and supplied, respectively. 20. Suppose the government government imposes imposes a tax of $8 per unit unit of Good B. What What is the incidence incidence of this tax on consumers and producers?
8 Key 1.
Illeg Illegal al road roadsi side de dump dumping ing result resulting ing from from the the intr introdu oduct ction ion of of waste waste dispos disposal al char charges ges is one one exam example ple of the ________ of an environmental policy. A. pollution A. pollution control cost B. enforcement B. enforcement cost C. unintended consequences D. before/after D. before/after result Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #1 Learning Objective: 08-01 08-01 Explain how the the concept of opportunity opportunity cost can apply apply to environmental regulations. regulations.
2.
Resou Resource rcess devot devoted ed to to monit monitori oring ng the the beha behavi viour our of firm firms, s, agen agencie cies, s, and and indi individ vidual ualss subje subject ct to to environmental regulations are called ________. A. abatement A. abatement costs B. enforcement costs C. private C. private costs D. environmental D. environmental costs Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #2 Learning Objective: 08-01 08-01 Explain how the the concept of opportunity opportunity cost can apply apply to environmental regulations. regulations.
3.
In the the fol follow lowing ing figur figure, e, the the soci social al oppo opportu rtuni nity ty cost cost of redu reducin cing g 40 units units of of emiss emission ionss is equal equal to to ________.
A. $100 A. $100 B. $800 B. C. $900 C. D. $1,600 Difficulty: Moderate Field - Chapter 08 #3 Learning Objective: 08-01 08-01 Explain how the the concept of opportunity opportunity cost can apply apply to environmental regulations. regulations.
4.
Suppo Suppose se a manu manufac factur turing ing firm firm that that is is about about to be be regul regulate ated d faces faces the follow following ing actual actual and potent potential ial production costs: 1) $4,000 before regulation; 2) $4,550 in the future without the regulation; and 3) $5,200 in the future with the regulation. The true cost of the proposed regulation is ________. A. $550 A. $550 B. $1,200 B. C. $650 D. impossible D. impossible to determine from the information provided. Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #4 Learning Objective: 08-02 08-02 Define the with-without with-without principle and how it applies to benefit-cost benefit-cost analysis.
5.
Suppo Suppose se a manu manufac factur turing ing firm firm that that is is about about to be be regul regulate ated d faces faces the follow following ing actual actual and potent potential ial production costs: 1) $2,500 before regulation; 2) $2,925 in the future without the regulation; and 3) $3,240 in the future with the regulation. The before/after cost of the regulation is ________ and the with/without cost of the regulation is ________. A. $425; A. $425; $740 B. $425; B. $425; $315 C. $740; $315 D. $315; D. $315; $425 Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #5 Learning Objective: 08-02 08-02 Define the with-without with-without principle and how it applies to benefit-cost benefit-cost analysis.
6.
A city city is is eval evaluat uatin ing g a prop propos osal al to to build build a recyc recyclin ling g depot depot.. If a gene generou rouss citi citizen zen is will willing ing to donate land for the project with a current market value of $800,000, the ________ of the land is ________. A. social A. social opportunity cost; $0 B. social B. social opportunity cost; unknown C. private C. private cost to the city; $800,000 D. social opportunity cost; $800,000 Accessibility: Keyboard Keyboard Navigation Difficulty: Moderate Field - Chapter 08 #6 Learning Objective: 08-03 08-03 Distinguish between between the private and socail costs of a project project and provide an an example.
7.
The The soci social al oppor opportun tunit ity y cost cost of of a new enviro environm nment ental al regula regulatio tion n shoul should d incl include ude the the cost cost of of enforcement. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #7 Learning Objective: 08-01 08-01 Explain how the the concept of opportunity opportunity cost can apply apply to environmental regulations. regulations.
8.
Suppo Suppose se a manu manufac factur turing ing firm firm that that is is about about to be be regul regulate ated d faces faces the follow following ing actual actual and potent potential ial production costs: 1) $500 before regulation; 2) $630 in the future without the regulation; and 3) $700 in the future with the regulation. The true cost of the proposed regulation is $200. FALSE
$200 represents the before/after costs of the regulation while the true cost is better reflected by the with/without costs of the regulation which in this example would be $70. Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #8 Learning Objective: 08-02 08-02 Define the with-without with-without principle and how it applies to benefit-cost benefit-cost analysis.
9.
If a firm firm goes goes out out of of busi busines nesss beca because use an envi environ ronme menta ntall regul regulati ation on now now requ require iress them them to to incur incur pollution-control costs that they were previously getting for free (at society's expense), society will be better off to have the polluter exit the industry. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Moderate Field - Chapter 08 #9 Learning Objective: 08-03 08-03 Distinguish between between the private and socail costs of a project project and provide an an example.
10.
When evaluati evaluating ng propo proposals sals for building building a new new sewage sewage treatmen treatmentt plant, plant, a cost-b cost-benef enefit it analy analysis sis does not have to include the cost of the land if it is to be donated. FALSE
The analysis should include the opportunity cost related to the value the land would have in its next best use. Accessibility: Keyboard Keyboard Navigation Difficulty: Moderate Field - Chapter 08 #10 Learning Objective: 08-03 08-03 Distinguish between between the private and socail costs of a project project and provide an an example.
11.
When environm environmenta entall regula regulation tion of an an entire entire industry industry results results in outpu outputt adjust adjustment ments, s, the the socia sociall cost cost of of the regulation can be measured by the changes in consumer and producer surpluses. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #11 Learning Objective: 08-04 08-04 Explain how to measure the social costs costs of a regulation regulation when industry output output adjusts.
12.
When supply supply and and dema demand nd are are linear linear curves, curves, the incidenc incidencee of the tax depends depends on the the slope slopess of the demand and supply curves. TRUE Accessibility: Keyboard Keyboard Navigation Difficulty: Easy Field - Chapter 08 #12 Learning Objective: 08-05 08-05 Define what is meant meant by the incidence of a policy policy and provide an illustration graphically graphically of how the share share paid by consumers consumers versus producers is determined. determined.
13.
Conside Considerr the the follow following ing illustr illustrativ ativee numbers numbers,, applyi applying ng to to a manufact manufacturin uring g firm firm for for which which a pollut pollutionioncontrol regulation has been proposed:
Determine the before/after costs of the regulation and the with/without costs of the regulation. Which of these two costs best reflects the true cost of the regulation? The before/after costs are equal to the costs in the future with the regulation minus the costs before the regulation: 9,700 - 8,900 = $800. The with/without costs are equal to the costs in the future with the regulation minus the costs in the future without the regulation: 9,700 - 9,200 = $500. The with/ without costs are a better reflection of the true cost of the regulation because the before/after costs do not consider the future increases in cost that would happen in the absence of the regulation coming into effect. Difficulty: Easy Field - Chapter 08 #13 Learning Objective: 08-02 08-02 Define the with-without with-without principle and how it applies to benefit-cost benefit-cost analysis.
14.
A regio region n is consi consider dering ing two two sites sites on on which which to loc locate ate a new new wast wastew ewate aterr treat treatme ment nt plant plant.. Site A has been owned by the region for five years and the region initially paid $200,000 for the land. The current market value of the site is $400,000. Site B is land the region would have to purchase for $300,000. What is the social opportunity cost of each site? Based on this, which site should they choose? Assuming that both sites give the same benefits in terms of use as a water treatment plant (and all other uses), site A has a social opportunity cost of $400,000 (what it would sell for today) while site B has a social opportunity cost of $300,000 (the purchase price today). Based on the opportunity costs of the two sites, site B should be selected. Difficulty: Moderate Field - Chapter 08 #14 Learning Objective: 08-03 08-03 Distinguish between between the private and socail costs of a project project and provide an an example.
15.
Suppose Suppose an indus industry try facing facing an an invers inversee deman demand d equati equation on equal equal to P = 120 120 - 4Q 4Q faces faces a new new pollut pollution ion control law that shifts its constant marginal cost of production from C1 = 50 to C2 = 68. Compute the social costs of regulation in this industry. The social cost will be equal to the changes in consumer and producer surplus resulting from the regulation. Before regulation, the market price will be $50 and output will be equal to 17.5 units. There is no producer surplus because the marginal cost is constant, but the consumer surplus is equal to the area of a triangle with height 70 and width 17.5 which is $612.50. After regulation, the market price will be $68 and the output will be 13 units. Again producer surplus is zero, but the consumer surplus is the area of triangle with height 52 and width 13 which is $338. The loss in consumer surplus resulting from the regulation is equal to $274.50 which is equal to the social cost of the pollution control law. Difficulty: Moderate Field - Chapter 08 #15 Learning Objective: 08-04 08-04 Explain how to measure the social costs costs of a regulation regulation when industry output output adjusts.
16.
Suppose Suppose an indus industry try facing facing an an invers inversee deman demand d equati equation on equal equal to P = 250 250 - 2.5Q 2.5Q faces faces a new pollutio pollution n control law that shifts its constant marginal cost of production from C1 = 25 to C2 = 50. Compute the social costs of regulation in this industry. The social cost will be equal to the changes in consumer and producer surplus resulting from the regulation. Before regulation, the market price will be $25 and output will be equal to 90 units. There is no producer surplus because the marginal cost is constant, but the consumer surplus is equal to the area of a triangle with height 225 and width 90 which is $10,125. After regulation, the market price will be $50 and the output will be 80 units. Again producer surplus is zero, but the consumer surplus is the area of triangle with height 200 and width 80 which is $8,000. The loss in consumer surplus resulting from the regulation is equal to $2,125 which is equal to the social cost of the pollution control law. Difficulty: Moderate Field - Chapter 08 #16 Learning Objective: 08-04 08-04 Explain how to measure the social costs costs of a regulation regulation when industry output output adjusts.
17.
Suppose Suppose an indus industry try facing facing an an invers inversee deman demand d equati equation on equal equal to P = 400 400 - 0.5Q 0.5Q faces faces a new pollutio pollution n control law that shifts its constant marginal cost of production from C1 = 80 to C2 = 100. Compute the social costs of regulation in this industry. The social cost will be equal to the changes in consumer and producer surplus resulting from the regulation. Before regulation, the market price will be $80 and output will be equal to 640 units. There is no producer surplus because the marginal cost is constant, but the consumer surplus is equal to the area of a triangle with height 320 and width 640 which is $102,400. After regulation, the market price will be $100 and the output will be 600 units. Again producer surplus is zero, but the consumer surplus is the area of triangle with height 300 and width 600 which is $90,000. The loss in consumer surplus resulting from the regulation is equal to $12,400 which is equal to the social cost of the pollution control law. Difficulty: Moderate Field - Chapter 08 #17 Learning Objective: 08-04 08-04 Explain how to measure the social costs costs of a regulation regulation when industry output output adjusts.
The following equations represent the inverse supply and demand functions in the market for Good A: PC = 80 - ½ QD PP = 14 + QS where PC and PP are the prices paid by consumers and received by producers respectively. QD and QS are the quantities demanded and supplied, respectively. Field - Chapter 08
18.
Suppose Suppose the governm government ent imposes imposes a tax tax of $6 per per unit unit of Good Good A. What is the the incid incidence ence of this this tax on consumers and producers? In order to answer this question, we need to determine the changes in consumer and producer surplus that result from the imposition of the tax. Without the tax, the competitive equilibrium output can be found by equating demand and supply: 80 - ½ Q = 14 + Q Q = 66/1.5 = 44 Producers and consumers both pay the same price P = $58. The consumer surplus is equal to the area of a triangle with height 22 and width 44 which is $484. The producer surplus is equal to the area of a triangle with height 44 and width 44 which is equal to $968. With the tax, the consumer price will equal the producer price plus $6. We find the tax equilibrium output by setting PC = PP + 6: 80 - ½ Q = 14 + Q + 6 Q = 60/1.5 = 40 Now consumers pay PC = $60 and producers pay PP = $54 (notice the difference between the two price levels is equal to the per unit tax). The consumer surplus is now equal to the area of a triangle with height 20 and width 40 which equals $400. Producer surplus is now equal to the area of a triangle with height 40 and width 40 which is $800. The tax affects consumers by increasing the price they pay from $58 to $60 resulting in a loss of consumer surplus of $84. The tax affects producers by decreasing the price they receive from $58 to $54 resulting in a loss of producer surplus of $168. Difficulty: Moderate Field - Chapter 08 #18 Learning Objective: 08-05 08-05 Define what is meant meant by the incidence of a policy policy and provide an illustration graphically graphically of how the share share paid by consumers consumers versus producers is determined. determined.
19.
Suppose Suppose the governm government ent imposes imposes a tax tax of $12 per unit of Good Good A. A. What What is is the the incide incidence nce of this this tax on consumers and producers?
In order to answer this question, we need to determine the changes in consumer and producer surplus that result from the imposition of the tax. Without the tax, the competitive equilibrium output can be found by equating demand and supply: 80 - ½ Q = 14 + Q Q = 66/1.5 = 44 Producers and consumers both pay the same price P = $58. The consumer surplus is equal to the area of a triangle with height 22 and width 44 which is $484. The producer surplus is equal to the area of a triangle with height 44 and width 44 which is equal to $968. With the tax, the consumer price will equal the producer price plus $12. We find the tax equilibrium output by setting PC = PP + 12: 80 - ½ Q = 14 + Q + 12 Q = 54/1.5 = 36 Now consumers pay PC = $62 and producers pay PP = $50 (notice the difference between the two price levels is equal to the per unit tax). The consumer surplus is now equal to the area of a triangle with height 18 and width 36 which equals $324. Producer surplus is now equal to the area of a triangle with height 36 and width 36 which is $648. The tax affects consumers by increasing the price they pay from $58 to $62 resulting in a loss of consumer surplus of $160. The tax affects producers by decreasing the price they receive from $58 to $50 resulting in a loss of producer surplus of $320. Difficulty: Moderate Field - Chapter 08 #19 Learning Objective: 08-05 08-05 Define what is meant meant by the incidence of a policy policy and provide an illustration graphically graphically of how the share share paid by consumers consumers versus producers is determined. determined.
The following equations represent the inverse supply and demand functions in the market for Good B: PC = 180 - 2QD PP = 40 + 2QS where PC and PP are the prices paid by consumers and received by producers respectively. QD and QS are the quantities demanded and supplied, respectively. Field - Chapter 08
20.
Suppose Suppose the governm government ent imposes imposes a tax tax of $8 per per unit unit of Good Good B. What is the the incid incidence ence of this this tax on consumers and producers? In order to answer this question, we need to determine the changes in consumer and producer surplus that result from the imposition of the tax. Without the tax, the competitive equilibrium output can be found by equating demand and supply: 180 - 2Q = 40 + 2Q Q = 140/4 = 35 Producers and consumers both pay the same price P = $110. The consumer surplus is equal to the area of a triangle with height 70 and width 35 which is $1,225. The producer surplus is equal to the area of a triangle with height 70 and width 35 which is equal to $1,225. With the tax, the consumer price will equal the producer price plus $8. We find the tax equilibrium output by setting PC = PP + 8: 180 - 2Q = 40 + 2Q + 8 Q = 132/4 = 33 Now consumers pay PC = $114 and producers pay PP = $106 (notice the difference between the two price levels is equal to the per unit tax). The consumer surplus is now equal to the area of a triangle with height 66 and width 33 which equals $1,089. Producer surplus is now equal to the area of a triangle with height 66 and width 33 which is $1,089. The tax affects consumers by increasing the price they pay from $110 to $114 resulting in a loss of consumer surplus of $136. The tax affects producers by decreasing the price they receive from $110 to $106 resulting in a loss of producer surplus of $136. Difficulty: Moderate Field - Chapter 08 #20 Learning Objective: 08-05 08-05 Define what is meant meant by the incidence of a policy policy and provide an illustration graphically graphically of how the share share paid by consumers consumers versus producers is determined. determined.
8 Summary Category
# of Questions
Accessibility: Keyboard Navigation
11
Difficulty: Easy
9
Difficulty: Moderate
11
Field - Chapter 08
22
Learning Objective: 08-01 Explain how the concept of opportunity cost can apply to en environmental regulations.
4
Learning Objective: 08-02 Define the with-without principle and how it applies to benefit-cost analysis.
4
Learning Ob Objective: 08 08-03 Di Distinguish be between th the pr private and so socail co costs of of a pr project an and pr provide an ex example.
4
Learning Ob Objective: 08 08-04 Ex Explain ho how to me measure th the social co costs of of a regulation wh when in industry ou output ad adjusts.
4
Learning Objective: 0805 Define what is meant by the incidence of a policy and provide an illustration graphically of how the share paid by consumers ve rsus producers is determined.
4