The licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:
Tradable Emissions Permits
There are benefits resulting indirectly from pollution because
We obtain goods and services we enjoy even though in the process we pollute.
If externalities are fully internalized, an outcome is efficient without government intervention.
True
Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do not:
Allow reductions in pollution to be achieved at a minimum cost.
There are two plants in an industry. To reduce pollution, the government has imposed environmental standards forcing each plant to cut emissions by 60%. At the emissions standard, the marginal social benefit of pollution for plant A is $500, and the margi
Allowing plant A to pollute more and requiring plant B to pollute less.
The efficient level of pollution is the quantity at which
Its total benefits to society equal its total cost to society.
Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to ensure that those who can reduce pollution
True
With use of ____ to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.
An emissions tax or a tradable emissions permit.
An advantage of tradable emissions permits is that:
They provide incentives for firms to develop technologies that are less polluting.
The marginal social benefit of pollution:
Can be measured as the additional gain to society from one additional unit of pollution.
Which of the following is usually associated with a positive externality
Innovation in the semiconductor industry.
Pigouvian Taxes:
Are designed to reduce external costs.
An externality is said to be internalized:
When individuals take external costs and benefits into account in their decision making.
The marginal social cost of pollution rises as the quantity of pollution emissions:
Rises
According to many economists, the government should:
Use its policies to achieve the least-cost reduction of carbon emissions.
According to Coase theorem, the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals, provided that the transaction costs of such deals are sufficiently low.
True
An uncompensated cost that an individual or firm imposes on others
External Cost or Negative Externalities
A benefit that an individual or firm confers on others without receiving compensation.
External Benefit or Positive Externalities
External costs and benefits
Externalities
The additional cost imposed on society as a whole by an additional unit of pollution
Marginal Social Cost of Pollution
The additional gain to society as a whole from an additional unit of pollution
Marginal Social Benefit of Pollution
The quantity of pollution that society would choose if all the costs and benefits of pollution were fully accounted for.
Socially Optimal Quantity of Pollution
The marginal social benefit curve is
Downward sloping
The marginal social cost curve is
Upward sloping
The socially optimal quantity (Qopt) of pollution is
where MSB crosses MSC
The market outcome (Qmkt) is
Inefficient
Even in the presence of externalities an economy can always reach an efficient solution as long as transaction costs- the costs of individuals making deal- are sufficiently low.
Coase Theorem
When individuals take external costs or benefits into account they
Internalize the externality
Why don't private parties always internalize externalities?
High cost of communication and the high cost of making legally binding and timely agreements.
Rules that protect the environment by specifying actions by producers and consumers
Environmental standards
A tax that depends on the amount of pollution a firm produces or a tax designed to reduce external costs
Pigouvian or Emission tax
Licenses to emit the limited quantities of pollutants that can be bought and sold by polluters.
Tradable emissions permits
Left to its own, the market will produce
Too little of a good that confers external benefits on others
A payment designed to encourage activities that yield external benefits
Pigouvian subsidy
An external benefit that results when knowledge spreads among individuals and firms
Technology spillover
Exists when the value of a good or service is greater when a large number of other people also use the good or service.
Network Externality