ECON 2100 UGA Test 2

Which of the following is an example of a secondary environmental benefit?

higher worker productivity due to improved health

If an individual enjoys swimming in the ocean, the ocean provides direct user value to the individual. (T/F)

true

If an individual receives utility from enjoying the view of a mountain range, that mountain range is said to provide indirect user value to the individual. (T/F)

true

Vicarious consumption refers to the notion that

people gain utility knowing that others receive gains from an environmental good

Physical linkage approach

Estimates benefits based upon a technical relationship between environmental resource and user of resource

Behavioral linkage approach

Estimates benefits using observations of behavior in actual markets or survey responses about hypothetical markets

The contingent valuation method uses surveys about hypothetical market conditions to estimate willingness to pay (WTP) for environmental quality. Which of the following are common drawbacks to using a survey approach?

(a) Survey participants may be unwilling to reveal WTP because of the free rider problem.

(b) Survey participants may have difficulty assigning a dollar value to environmental quality.

(c) Survey participants' WTP for an improvement in environmental quality can differ from their WTA (willingness to accept) compensation for a reduction in environmental quality.

(d) A survey approach cannot capture existence value.

All of the above.

(a), (b), and (c)

(a), (b), and (c)

The averting expenditure method estimates benefits as the reduction in spending on goods that are substitutes for a cleaner environment; whereas the travel cost method estimates benefits as an increase in consumer surplus in the market for a complement to environmental quality as policy improves that quality. (T/F)

true

A disadvantage of the travel cost method is

(a) it cannot determine user value

(b) it cannot determine existence value

(c) it focuses on recreational use making it ineffective for commercial use

all of the above

(b) and (c) only

(b) and (c) only

The hedonic price method uses regression analysis to obtain estimates of the implicit prices of individual attributes, including environmental quality. The hedonic price method requires complex empirical modeling, extensive data, and variation across data points. (t/f)

true

(T/F) When implementing environmental policy, explicit costs include administrative, monitoring, and enforcement expenses paid by the public sector plus compliance costs paid by all economic sectors.

true

Variable spending arising as part of the operation and maintenance of abatement processes is known as

a. fixed costs

b. implicit costs

c. capital costs

d. operating costs

d. operating costs

(T/F) The value of reduced product variety due to an environmental policy initiative or regulation is an example of an implicit cost.

True

The time cost incurred by consumers who must find substitute products after a ban is placed on some good or service is an example of a(n)

A. capital cost

B. fixed cost

C. implicit cost

D. explicit cost

E. operating expense

Implicit cost

Incremental cost assessment involves

A. valuing Total Social Cost (TSC) at a single level of abatement

B. subtracting baseline TSC prior to undertaking policy from post-policy TSC

C. summing baseline TSC and post-policy TSC

D. finding the ratio of TSC to MSC at a given abatement level

E. none of the above

subtracting baseline TSC prior to undertaking policy from post-policy TSC

The engineering approach to estimating incremental environmental costs

A. depends on expert input and is based on least-cost available technology

B. obtains estimates of abatement costs directly from polluting sources

C. relies on surveys to find the implicit costs of pollution abatement

D. is also known as the physical linkage approach

depends on expert input and is based on least-cost available technology

When estimating incremental environmental costs, the survey approach

A. is a less direct means of gathering abatement cost data than the engineering approach

B. finds the level of abatement expenditures based on least-cost technology

C. suffers from inherent biases associated with polluting sources

D. relies on expert knowledge about abatement technology

suffers from inherent biases associated with polluting sources

(T/F) The two manufacturing industries with the highest pollution abatement costs are (1) Chemical and (2) Petroleum and Coal Products.

false

If the value of an environmental benefit realized two years from today is $242, and the annual rate of return (discount rate) is 10 percent, then its present value is

200

The social discount rate should be based on the rate of return that could be realized through:

A. private spending on consumption

B. private investment assuming the same amount of risk

C. both of the above

D. none of the above

both of the above

In a benefit-cost analysis, an option is determined to be feasible if

(a) the benefit-cost ratio (PVB/PVC) is greater than zero

(b) the benefit-cost ratio (PVB/PVC) is greater than one

(c) the present value of net benefits (PVNB) is greater than zero

(a) or (c)

(b) or (c)

(b) or (c)

If, for a given policy option, PVNB equals $1,200, and PVC equals $800, then

A. the policy option is not feasible because the value of PVB is $400

B. the benefit-cost ratio, PVB/PVC, equals 1.5

C. the policy option is feasible because (PVB - PVC) is greater than one

D. there is insufficient information to determine if the policy option is feasible

C. the policy option is feasible because (PVB - PVC) is greater than one

Among the chief concerns about the use of benefit-cost analysis is that

A. monetizing the benefits of a policy proposal is difficult

B. identifying and estimating implicit costs is a major challenge

C. equity might not be achieved if, for example, costs are distributed unevenly

D. all of the above

E. none of the above

all of the above

Who was the first U.S. president to explicitly refer to the efficiency criterion (maximizing net benefits) as part of the regulatory review process?

A. President George W. Bush

B. President Reagan

C. President Obama

D. President Clinton

President Reagan

Suppose that Los Angeles area is plagued by urban smog and several ground-level ozone-reducing policy options are being evaluated. To determine which policy option is the most efficient, economists could

(a) rank order the various policy options according to their benefit-cost ratios

(b) rank order the various policy options according to the present value of net benefits

(c) use either of the approaches described in (a) and (b)

(d) none of the above

(b) rank order the various policy options according to the present value of net benefits

In the United States, air quality standards set limits on

a. anthropogenic pollutants

b. natural pollutants

c. both of the above

d. none of the above

anthropogenic pollutants

(T/F) Prior to the 1950s, all air quality laws in the United States had been enacted at the state and local levels of government.

true

The 1990 Clean Air Act Amendments include tradeable allowances programs for

A. sulfur dioxide emissions

B. stratospheric ozone-depleting substances

C. both of the above

D. none of the above

both of the above

Asbestos is an example of a

A. criteria air pollutant

B. hazardous air pollutant

C. greenhouse gas air pollutant

D. none of the above

hazardous air pollutant

In the United States, the primary standards established for identified criteria air pollutants

A. are motivated solely by expected benefits with no consideration of costs

B. are intended to protect public welfare

C. are applicable only to mobile sources

D. are known as the NESHAP

are motivated solely by expected benefits with no consideration of costs

The secondary NAAQS

A. are intended to protect public welfare from adverse non-health effects of air pollution

B. are established to protect public health from air pollution

C. control both criteria air pollutants and hazardous air pollutants

D. all of the above

are intended to protect public welfare from adverse non-health effects of air pollution

Standards set to control hazardous air pollutants in the United States

A. are known as NESHAP

B. are applicable to every major source of any identified hazardous air pollutant

C. are intended to attain the maximum reduction achievable for each air toxic

D. all of the above

D. all of the above

EPA regulations to address greenhouse gas pollutants include:

(a) emissions standards

(b) ambient standards

(c) permitting and reporting requirements

all of the above

(a) and (c)

(a) and (c)

Geographic areas in which pollution is greater than what is allowed by national ambient air quality standards are referred to as

a. prevention of significant deterioration areas

b. air quality control regions

c. non-attainment areas

d. over-attainment areas

non-attainment areas

If an area or region meets or exceeds the NAAQS, it is called a(n)

a. air quality control region

b. prevention of significant deterioration area

c. non-attainment region

d. none of the above

prevention of significant deterioration area

If the marginal social cost outweighs the marginal social benefit for a proposed air quality standard, then

A. the proposed standard would over-regulate society.

B. the proposed standard would under-regulate society.

C. the proposed standard would be efficient.

D. there is not enough information to tell whether the proposed standard would be efficient.

the proposed standard would over-regulate society.

(T/F) Because the NAAQS are nationally-based and uniform, they necessarily achieve an efficient result at the regional level.

false

Under what circumstances would it be efficient to impose a higher abatement standard for a PSD region than for a non-attainment region?

A. If the marginal social cost of any level of abatement is higher in the PSD region than in the non-attainment region.

B. If marginal social benefit exceeds marginal social cost at the higher abatement level in the PSD region.

C. If marginal social cost equals marginal social benefit at the higher abatement level in the PSD region.

D. If marginal social cost exceeds marginal social benefit at the higher abatement level in the PSD region.

If marginal social cost equals marginal social benefit at the higher abatement level in the PSD region.

Which of the following sentences correctly describe the Air Quality Index (AQI)?

A. An AQI of 500 is considered to correspond to the standard set by the Clean Air Act.

B. The AQI signifies the best daily air quality in an urban area over a given time period.

C. AQI is reported as the average of five pollutant-specific index values.

D. All of the above

E. None of the above

None of the above

Which of the following sentences correctly describe photochemical smog?

A. The principal component of photochemical smog is ground-level ozone.

B. Photochemical smog is formed from a chemical reaction involving certain pollutants in the presence of sunlight.

C. The highest emitters of smog precursors among transportation sources are gas-powered cars.

D. All of the above

E. None of the above

All of the above

(T/F) Title II of the Clean Air Act Amendments of 1990 strengthened regulations on motor vehicle emissions and fuels.

True

(T/F) Reformulated fuel contains more oxygen to permit more complete combustion and to lower carbon monoxide emissions.

false

(T/F) Used in certain nonattainment areas, the cleaner fuel that emits less hydrocarbons, carbon monoxide, and toxics than conventional gasoline is called oxygenated fuel.

false

Past and present market incentives for clean fuel vehicles include

A. credits to fleet owners who surpass requirements in the law

B. tax credits for hybrids

C. tax credits for fuel cell and alternative fuel vehicles

D. tax credits for plug-in hybrids

E. all of the above

all of the above

Which state currently has a waiver under the Clean Air Act that allows it to set its own air quality standards?

A. Georgia

B. New York

C. California

D. Texas

E. None of the above

C. California

A benefit-based standard is one that

A. considers the benefits balanced with the costs of that standard

B. maximizes the present value of net benefits

C. is set to the point at which marginal social cost is zero

D. none of the above

Uniform standards

A. overregulate "clean" areas and underregulate "dirty" areas

B. refer to standards that remain the same over time

C. do not apply to mobile sources

D. achieve an efficient abatement level in all regions

overregulate "clean" areas and underregulate "dirty" areas

Assume there are two regions with the same marginal social cost curve for abatement of pollution by mobile sources. Assume that the marginal social benefit of abatement is higher in the "dirty" region than in the "clean" region. Compare the efficient level of abatement in the two regions.

A. The efficient level of abatement is higher in the "dirty" region than in the "clean" region.

B. The efficient level of abatement is lower in the "dirty" region than in the "clean" region.

C. The same level of abatement is efficient in both regions.

D. There is not enough information to tell.

The efficient level of abatement is higher in the "dirty" region than in the "clean" region.

(T/F) U.S. policy on mobile sources imposes more stringent controls on new vehicles, creating a bias against newer, and hence cleaner, motor vehicles and perversely encouraging use of older, higher-emitting cars.

true

Which of the following sentences accurately describe tax credits for clean fuel vehicles?

(a) Tax credits act like a subsidy, shifting up the MPB curve by the amount of the credit.

(b) An efficient equilibrium can be achieved if the credit is set equal to the amount of the marginal external benefit at the efficient quantity.

(c) Tax credits for clean fuel vehicles create a bias against newer, and hence cleaner, motor vehicles.

(d) All of the above

(a) and (b) only

(a) and (b) only