## Environmental Economics 4th Canadian Edition by by Barry C Field – Test Bank

c5 Student: ___________________________________________________________________________ 1. Determining a target level of environmental quality is an example of _______. A. positive policy analysis B. positive economics C. normative policy analysis D. benefit-cost analysis 2. For certain pollutants with a(n) _______, emissions or ambient quality up to a certain level cause _________ damages. A. threshold; no B. ambient concentration; no C. threshold; severe D. ambient concentration; severe 3. A marginal damage function that becomes vertical at high levels of emissions represents _______. A. a threshold B. an infinite ambient concentration C. a toxic pollutant D. an environmental catastrophe 4. A(n) ________ shows how damages are related to the concentration of a waste product contained in the ambient environment. A. emission damage function B. ambient damage function C. marginal damage function D. ambient concentration 5. For a marginal damage cost function equal to: MD = 0.8E, the marginal damage cost of the 50th unit of emissions is _______. A. $4 B. $40 C. $1,000 D. $2,000 6. In the following figure, the marginal damage cost of the 25th unit of emissions is equal to _______. A. $10 B. $25 C. $125 D. $250 7. In the following figure, the total damage cost of 25 units of emissions is equal to _______. A. $10 B. $125 C. $250 D. $625 8. In the following figure, the uncontrolled level of emissions is _______. A. 80 B. 40 C. 160 D. impossible to determine from the information provided 9. In the following figure, the marginal abatement cost of abating the 20th unit of emissions is _______. A. $40 B. $200 C. $400 D. impossible to determine from the information provided 10. In the following figure, the total abatement cost of abating 20 units of emissions is _______. A. $40 B. $400 C. $800 D. impossible to determine from the information provided 11. Suppose there are three polluting sources with MAC1 = 100 – 4E, MAC2 = 80 – 2E and MAC3 = 60 – 0.5E. When MAC equals $10, the aggregate level of abatement for these sources would be _______. A. 175 units B. 157.5 units C. 212.5 units D. impossible to determine from the information provided 12. Suppose there are three polluting sources with MAC1 = 75 – 0.25E, MAC2 = 120 – 4E and MAC3 = 50 – 0.5E. When MAC equals $20, the aggregate level of abatement for these sources would be _______. A. impossible to determine from the information provided B. 150 units C. 305 units D. 555 units 13. For a firm with more than one source of output with differing cost structures, its ________ will be minimized when its ________ are equalized across sources. A. marginal production costs; production levels B. total production costs; production levels C. total production costs; marginal production costs D. marginal production costs; total production costs 14. For a firm with more than one source of emissions, the ________ states that the total costs of abating a given abatement target will be minimized when the marginal costs of abatement are ________ across sources. A. equimarginal principle; equalized B. law of one price; equalized C. equimarginal principle; minimized D. Coase theorem; equalized 15. Under what circumstances would a firm with more than one source of emissions minimize its total costs of abatement by setting abatement levels equal at each source? A. This method will always result in the firm minimizing its total abatement costs. B. When each source has identical marginal cost of production structures. C. When each source has identical marginal abatement cost structures. D. When each source has identical marginal damage cost structures. 16. Under what circumstances would a firm with more than one source of production minimize its total costs of production by setting production levels equal at each source? A. This method will always result in the firm minimizing its total production costs. B. When each source has identical marginal cost of production structures. C. When each source has identical marginal abatement cost structures. D. When each source has identical marginal damage cost structures. 17. The study of what ought to be such as determining the socially efficient level of emissions is known as normative economics. True False 18. Describing and explaining economic events that have taken place in the real world is known as positive economics. True False 19. For a single, non-accumulative pollutant, when no threshold exists the marginal damage function begins at the origin. True False 20. The height of the marginal damage curve at a particular level of emissions shows how much total damages change if there is a small change in the quantity of emissions. True False 21. The least costly way of achieving reductions in emissions for a group of polluting sources is depicted by the aggregate marginal abatement cost function of the group of sources. True False 22. The equimarginal principle can only be applied at the level of one firm with multiple plants all producing the same good and pollutant. True False 23. Briefly define positive and normative economics and give an example of each concept. 24. Draw a diagram of the marginal abatement cost curve described by: MAC = 100 – 2E. What is the uncontrolled level of emissions? What is the marginal abatement cost of the 40th unit of abatement? What is the total abatement cost of 40 units of abatement? 25. Draw a diagram of the marginal abatement cost curve described by: MAC = 90 – 3E. What is the uncontrolled level of emissions? What is the marginal abatement cost of the 10th unit of abatement? What is the total abatement cost of 10 units of abatement? 26. Let MAC1 = 80 – 2E and MAC2 = 50 – E. Graph each function and graphically derive the aggregate MAC curve. The following diagram presents the marginal damage cost (MDC) and marginal abatement cost (MAC) curves for a particular industry. 27. What is the socially efficient level of emissions for this industry? 28. What is the socially efficient level of abatement for this industry? 29. What is the total damage cost at the socially efficient level of emissions for this industry? 30. What is the total abatement cost at the socially efficient level of emissions? 31. What is the total social cost at the socially efficient level of emissions? c5 Key 1. Determining a target level of environmental quality is an example of _______. A. positive policy analysis B. positive economics C. normative policy analysis D. benefit-cost analysis Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #1 Learning Objective: 05-01 Distinguish between positive and normative economics. 2. For certain pollutants with a(n) _______, emissions or ambient quality up to a certain level cause _________ damages. A. threshold; no B. ambient concentration; no C. threshold; severe D. ambient concentration; severe Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #2 Learning Objective: 05-02 Define the marginal damage function and distinguish among four different shapes and what each means. 3. A marginal damage function that becomes vertical at high levels of emissions represents _______. A. a threshold B. an infinite ambient concentration C. a toxic pollutant D. an environmental catastrophe Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #3 Learning Objective: 05-02 Define the marginal damage function and distinguish among four different shapes and what each means. 4. A(n) ________ shows how damages are related to the concentration of a waste product contained in the ambient environment. A. emission damage function B. ambient damage function C. marginal damage function D. ambient concentration Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #4 Learning Objective: 05-02 Define the marginal damage function and distinguish among four different shapes and what each means. 5. For a marginal damage cost function equal to: MD = 0.8E, the marginal damage cost of the 50th unit of emissions is _______. A. $4 B. $40 C. $1,000 D. $2,000 Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #5 Learning Objective: 05-03 Distinguish between marginal and total damages and illustrate their derivation graphically. 6. In the following figure, the marginal damage cost of the 25th unit of emissions is equal to _______. A. $10 B. $25 C. $125 D. $250 Difficulty: Easy Field – Chapter 05 #6 Learning Objective: 05-03 Distinguish between marginal and total damages and illustrate their derivation graphically. 7. In the following figure, the total damage cost of 25 units of emissions is equal to _______. A. $10 B. $125 C. $250 D. $625 Difficulty: Easy Field – Chapter 05 #7 Learning Objective: 05-03 Distinguish between marginal and total damages and illustrate their derivation graphically. 8. In the following figure, the uncontrolled level of emissions is _______. A. 80 B. 40 C. 160 D. impossible to determine from the information provided Difficulty: Easy Field – Chapter 05 #8 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 9. In the following figure, the marginal abatement cost of abating the 20th unit of emissions is _______. A. $40 B. $200 C. $400 D. impossible to determine from the information provided Difficulty: Easy Field – Chapter 05 #9 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 10. In the following figure, the total abatement cost of abating 20 units of emissions is _______. A. $40 B. $400 C. $800 D. impossible to determine from the information provided Difficulty: Easy Field – Chapter 05 #10 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 11. Suppose there are three polluting sources with MAC1 = 100 – 4E, MAC2 = 80 – 2E and MAC3 = 60 – 0.5E. When MAC equals $10, the aggregate level of abatement for these sources would be _______. A. 175 units B. 157.5 units C. 212.5 units D. impossible to determine from the information provided Accessibility: Keyboard Navigation Difficulty: Moderate Field – Chapter 05 #11 Learning Objective: 05-05 Show graphically how to aggregate marginal abatement cost curves. 12. Suppose there are three polluting sources with MAC1 = 75 – 0.25E, MAC2 = 120 – 4E and MAC3 = 50 – 0.5E. When MAC equals $20, the aggregate level of abatement for these sources would be _______. A. impossible to determine from the information provided B. 150 units C. 305 units D. 555 units Accessibility: Keyboard Navigation Difficulty: Moderate Field – Chapter 05 #12 Learning Objective: 05-05 Show graphically how to aggregate marginal abatement cost curves. 13. For a firm with more than one source of output with differing cost structures, its ________ will be minimized when its ________ are equalized across sources. A. marginal production costs; production levels B. total production costs; production levels C. total production costs; marginal production costs D. marginal production costs; total production costs Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #13 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 14. For a firm with more than one source of emissions, the ________ states that the total costs of abating a given abatement target will be minimized when the marginal costs of abatement are ________ across sources. A. equimarginal principle; equalized B. law of one price; equalized C. equimarginal principle; minimized D. Coase theorem; equalized Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #14 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 15. Under what circumstances would a firm with more than one source of emissions minimize its total costs of abatement by setting abatement levels equal at each source? A. This method will always result in the firm minimizing its total abatement costs. B. When each source has identical marginal cost of production structures. C. When each source has identical marginal abatement cost structures. D. When each source has identical marginal damage cost structures. Accessibility: Keyboard Navigation Difficulty: Moderate Field – Chapter 05 #15 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 16. Under what circumstances would a firm with more than one source of production minimize its total costs of production by setting production levels equal at each source? A. This method will always result in the firm minimizing its total production costs. B. When each source has identical marginal cost of production structures. C. When each source has identical marginal abatement cost structures. D. When each source has identical marginal damage cost structures. Accessibility: Keyboard Navigation Difficulty: Moderate Field – Chapter 05 #16 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 17. The study of what ought to be such as determining the socially efficient level of emissions is known as normative economics. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #17 Learning Objective: 05-01 Distinguish between positive and normative economics. 18. Describing and explaining economic events that have taken place in the real world is known as positive economics. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #18 Learning Objective: 05-01 Distinguish between positive and normative economics. 19. For a single, non-accumulative pollutant, when no threshold exists the marginal damage function begins at the origin. TRUE When no threshold exists, the very first unit of emissions has an impact on the environment. Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #19 Learning Objective: 05-02 Define the marginal damage function and distinguish among four different shapes and what each means. 20. The height of the marginal damage curve at a particular level of emissions shows how much total damages change if there is a small change in the quantity of emissions. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #20 Learning Objective: 05-03 Distinguish between marginal and total damages and illustrate their derivation graphically. 21. The least costly way of achieving reductions in emissions for a group of polluting sources is depicted by the aggregate marginal abatement cost function of the group of sources. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #21 Learning Objective: 05-05 Show graphically how to aggregate marginal abatement cost curves. 22. The equimarginal principle can only be applied at the level of one firm with multiple plants all producing the same good and pollutant. FALSE Accessibility: Keyboard Navigation Difficulty: Easy Field – Chapter 05 #22 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 23. Briefly define positive and normative economics and give an example of each concept. Positive economics studies “what is” by describing or explaining events that actually occur in the real world. An example of positive economics is the analysis of market data on actual prices and sales volumes of a particular good (many other examples are possible here). Normative economics studies “what ought to be” such as what the outcome of the economy or public policy ought to be in order to satisfy a certain goal (eg., fairness, social efficiency, etc.). An example of normative economics is designing an environmental policy that treats people of different income levels fairly (again numerous other examples are possible). Difficulty: Easy Field – Chapter 05 #23 Learning Objective: 05-01 Distinguish between positive and normative economics. 24. Draw a diagram of the marginal abatement cost curve described by: MAC = 100 – 2E. What is the uncontrolled level of emissions? What is the marginal abatement cost of the 40th unit of abatement? What is the total abatement cost of 40 units of abatement? The diagram below shows the function described by: MAC = 100 – 2E. To find the level of uncontrolled emissions, set MAC = 0 and solve for E: 0 = 100 – 2E E = 100/2 = 50 To find the MAC of the 40th unit of abatement, we first need to determine the level of emissions associated with this amount of abatement. Current emissions will equal uncontrolled emissions minus the level of abatement: E = 50 – 40 = 10 units of emissions remaining Now solve for MAC by substituting E = 10 into the MAC equation: MAC = 100 – 2(10) = $80. The TAC of 40 units of abatement will equal the area under the MAC from E = 10 to E = 50 which is the area of a triangle with height 80 and width of 40 (area A in the diagram below): TAC = ½(80 × 40) = $1,600 Difficulty: Moderate Field – Chapter 05 #24 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 25. Draw a diagram of the marginal abatement cost curve described by: MAC = 90 – 3E. What is the uncontrolled level of emissions? What is the marginal abatement cost of the 10th unit of abatement? What is the total abatement cost of 10 units of abatement? The diagram below shows the function described by: MAC = 90 – 3E. To find the level of uncontrolled emissions, set MAC = 0 and solve for E: 0 = 90 – 3E E = 90/3 = 30 To find the MAC of the 10th unit of abatement, we first need to determine the level of emissions associated with this amount of abatement. Current emissions will equal uncontrolled emissions minus the level of abatement: E = 30 – 10 = 20 units of emissions remaining Now solve for MAC by substituting E = 20 into the MAC equation: MAC = 90 – 3(20) = $30. The TAC of 10 units of abatement will equal the area under the MAC from E = 20 to E = 30 which is the area of a triangle with height 30 and width of 10 (area A in the diagram below): TAC = ½(30 × 10) = $150 Difficulty: Moderate Field – Chapter 05 #25 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 26. Let MAC1 = 80 – 2E and MAC2 = 50 – E. Graph each function and graphically derive the aggregate MAC curve. The following table summarizes the abatement that will take place at each MAC level and the total for each MAC level. The first panel shows the individual sources’ MAC curves. Source 1’s MAC is represented by the blue line and Source 2’s MAC is represented by the red line. The second panel shows the aggregate MAC curve (the green line). Note the kink at MAC = $50. Difficulty: Moderate Field – Chapter 05 #26 Learning Objective: 05-05 Show graphically how to aggregate marginal abatement cost curves. The following diagram presents the marginal damage cost (MDC) and marginal abatement cost (MAC) curves for a particular industry. Field – Chapter 05 27. What is the socially efficient level of emissions for this industry? The socially efficient level of emissions can be found where the marginal damage cost equals the marginal abatement cost. Set the two equations equal to solve for E*: 200 + E = 900 – 0.75E 1.75E = 700 E = 700/1.75 = 400 = E* The socially efficient level of emissions is equal to 400 units. Difficulty: Easy Field – Chapter 05 #27 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. 28. What is the socially efficient level of abatement for this industry? The socially efficient level of abatement is found by subtracting the socially efficient level of emissions from the level of uncontrolled emissions. Uncontrolled emissions can be found where MAC = 0: 0 = 900 – 0.75E E0 = 900/0.75 = 1,200 A* = E0 – E* = 1,200 – 400 = 800 units The socially efficient level of abatement is equal to 800 units. Difficulty: Moderate Field – Chapter 05 #28 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. 29. What is the total damage cost at the socially efficient level of emissions for this industry? The total damage cost when emissions equals 400 units is the area under the marginal damage cost curve. When E = 400, MDC = 200 + E = 600. The area under the MDC curve will be the area of a rectangle with height of 200 and width of 400 and a triangle with height of 400 and a width of 400 yielding: TDC = 200 × 400 + ½ (400 × 400) = 80,000 + 80,000 = $160,000. The total damage cost at the socially efficient level of emissions is $160,000. Difficulty: Moderate Field – Chapter 05 #29 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. 30. What is the total abatement cost at the socially efficient level of emissions? The total abatement cost at the socially efficient level of emissions is equal to the area under the marginal abatement cost curve from emissions of 400 to emissions of 1,200 (this distance represents the abatement of 800 units). When emissions are 400, MAC = 900 – 0.75(400) = 600. Total abatement cost is going to be the area of a triangle with height of 600 and base of 800: TAC = ½ (800 × 600) = $240,000 The total abatement cost at the socially efficient level of emissions is $240,000. Difficulty: Easy Field – Chapter 05 #30 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. 31. What is the total social cost at the socially efficient level of emissions? The total social cost at the socially efficient level of emissions is equal to the sum of the TDC and the TAC: TSC = 160,000 + 240,000 = $400,000 The total social cost at the socially efficient level of emissions is $400,000. At any other level of emissions, the TSC will be higher than the TSC at the social optimum. Difficulty: Easy Field – Chapter 05 #31 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. c5 Summary Category # of Questions Accessibility: Keyboard Navigation 17 Difficulty: Easy 22 Difficulty: Moderate 9 Field – Chapter 05 32 Learning Objective: 05-01 Distinguish between positive and normative economics. 4 Learning Objective: 05-02 Define the marginal damage function and distinguish among four different shapes and what each means. 4 Learning Objective: 05-03 Distinguish between marginal and total damages and illustrate their derivation graphically. 4 Learning Objective: 05-04 Interpret the meaning of the marginal abatement cost curve and illustrate graphically the distinction between marginal and total costs of abatement. 5 Learning Objective: 05-05 Show graphically how to aggregate marginal abatement cost curves. 4 Learning Objective: 05-06 Explain the equimarginal principle and how it applies to marginal abatement costs. 5 Learning Objective: 05-07 Illustrate graphically the determination of a socially efficient level of pollution and how this equilibrium minimizes net social costs compared to no emission control. 5

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