Exhibit 31-3

Costs of Eliminating:
Firm A

Firm B

Firm C

1st ton of pollution
$ 30

$ 50

$ 600

2nd ton of pollution
$ 70

$ 90

$ 700

3rd ton of pollution
$125

$150

$ 900

4th ton of pollution
$200

$250

$1,300

Refer to Exhibit 31-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution the government imposes an emission tax of $300 per ton of pollution. As a result of this tax, Firm A would , firm B would and firm C would .

Select one:

a. not reduce any of its pollution; not reduce any of its pollution; reduce all 4 tons of its pollution

b. reduce all 4 tons of its pollution; only reduce 1 ton of its pollution; not reduce any of its pollution

c. reduce all 4 tons of its pollution; reduce all 4 tons of its pollution; not reduce any of its pollution

d. not reduce any of its pollution; reduce 3 tons of its pollution; reduce all 4 tons of its pollution

Exhibit 31-3

Costs of Eliminating:
Firm A

Firm B

Firm C

1st ton of pollution
$ 30

$ 50

$ 600

2nd ton of pollution
$ 70

$ 90

$ 700

3rd ton of pollution
$125

$150

$ 900

4th ton of pollution
$200

$250

$1,300

Refer to Exhibit 31-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution in half the government issues two transferable pollution permits to each firm (a cap and trade policy). What is the total cost savings to society of decreasing pollution to half its present level if firm C buys one pollution permit from firm A and one pollution permit from firm B compared to if there were a government mandate for each firm to cut pollution by one-half?

Select one:

a. $515

b. $1,300

c. $1,380

d. $965

e. $1,025

Exhibit 31-3

Costs of Eliminating:
Firm A

Firm B

Firm C

1st ton of pollution
$ 30

$ 50

$ 600

2nd ton of pollution
$ 70

$ 90

$ 700

3rd ton of pollution
$125

$150

$ 900

4th ton of pollution
$200

$250

$1,300

Refer to Exhibit 31-3. What is the cost to Firm C of eliminating 2 tons of pollution?

Select one:

a. $1,300

b. $300

c. $1,500

d. $2,200

e. $3,500

Insurance deductibles the problem of insurance coverage.

Select one:

a. are meant to reduce; adverse selection

b. are meant to reduce; moral hazard

c. unintentionally worsen; adverse selection

d. unintentionally worsen; moral hazard

A negative externality exists and government wants to impose a per-unit tax in order to bring about the socially optimal output. To accomplish its objective, government must set the tax equal to marginal

Select one:

a. private cost.

b. social benefit.

c. external cost.

d. social cost.

e. private benefit.

For a good where network externalities are present, having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Select one:

True

False