Question

1. The advantages of emissions permits over taxes is/are that
   a.   environmental authorities decide on an emissions ceiling in advance of issuing permits.
   b.   it increases uncertainty about the quantity of pollution that will be emitted.
   c.   firms whose marginal cost of reducing emissions are lower than the market price of permits will find it more profitable to buy additional permits than to reduce their emissions.
   d.   pollutants can be raised to levels that have adverse effects on health.

2. Changes in the rate charged by electric power companies are subject to government control because
   a.   the electric power companies are firms that exhibit economies of scale.
   b.   the electric power companies are government enterprises.
   c.   consumer ignorance makes it impossible to know what rates are fair.
   d.   cutthroat competition would probably occur if the government did not intervene.

3. Taxes on polluting firms have
   a.   can easily be avoided and are therefore, unsuccessful.
   b.   not been used in the United States.
   c.   been successful in reducing water pollution in the Ruhr River basin in Germany.
   d.   more advantageous over voluntarism and direct controls.

4. The price elasticity of demand for an exhaustible natural resource tends to
   a.   rise over time because the resource’s rising price stimulates conservation and the development of substitutes.
   b.   rise over time because resource extraction tends to become more efficient over time.
   c.   stay constant over time because the resource’s price rises at a constant rate.
   d.   fall over time because extraction costs rise over time.

5. Who of the following has been prominently accused of acting on the basis of the “edifice complex”?
   a.   Environmental activists
   b.   The Army Corps of Engineers
   c.   A. C. Pigou
   d.   The Environmental Protection Agency

6. When insurance causes people to take more risks, this is called
   a.   moral hazard.
   b.   adverse selection.
   c.   asymmetric information.
   d.   defective telescopic faculty.

Answer 1

1. Option a

In the case of permits, environmental authorities decide on an emissions ceiling in advance, later issue permits authorizing amount of emissions.

2. Option b

The electric power companies are monopolies of a service that is important to buyers.

3. Option d

Direct controls are government rules that tell organization on what to produce

Voluntarism, often has proved weak and unreliable over the past

4. Option a

The depletion of natural resources and development of other substitutes, would make the price elasticity to be increasing.

5. Option b

It refers to the practice of using publicly funded projects as political and election propoganda

6. Option a

It refers to increase in exposure to risk and do not bear the full costs of the risk.