14

14
Student: ___________________________________________________________________________
1. When there is uncertainty about the marginal abatement cost curve andthe marginal damage cost curve is
________, a tax equal to the ________ is the socially efficient policy.
A. horizontal; socially efficient level of emissions
B. horizontal; marginal damages
C. vertical; marginal abatement cost
D. vertical; marginal damages
2. When there is uncertainty about the marginal abatement cost curve and the marginal damage cost curve
is ________, a transferable emission permit or a standard equal to the ________ is the socially efficient
policy.
C. vertical; socially efficient level of emissions
D. vertical; socially efficient level of abatement
3. An emission tax scheme will always have a higher private compliance cost than a transferable emission
permit scheme that achieves the same level of abatement.
True False
4. Individual standards have the same informational requirements as uniform standards.
True False
5. When there is uncertainty about the marginal abatement cost curve, the flatter the marginal damage cost
curve, the closer a standard or transferable emissions program will be to the socially efficient equilibrium
than a tax.
True False
6. When there is uncertainty about the marginal abatement cost curve, the steeper the marginal damage cost
curve, the closer a standard or transferable emissions program will be to the socially efficient equilibrium
than a tax.
True False
7. Under a standard, the polluter has an incentive to reveal a MAC that is lower than its true MAC.
True False
8. Whether a polluter reveals its true MAC under a tax depends on the tax rate set by the regulator and the
polluter's true MAC.
True False
9. Under a tax, a polluter has no incentive to reveal an excessively high MAC relative to its true MAC.
True False
10. Under a transferable emission permit scheme, a polluter has an incentive to reveal an excessively high
MAC relative to its true MAC.
True False
The following table summarizes the marginal abatement cost functions for an industry with three
difference sources of pollution.
11. Compare the total social costs and total private compliance costs by source and for the entire industry of
a $72 emission tax versus a uniform standard that achieves the same level of industry abatement as the
tax.
The following table summarizes the marginal abatement cost functions for an industry with two
12. Compare the total social costs and total private compliance costs by source and for the entire industry of
a transferable emission permit scheme versus a uniform standard that achieve industry emissions of 800
units. Assume each source is given one-half of the permits initially.
14 Key
1. When there is uncertainty about the marginal abatement cost curve andthe marginal damage cost
curve is ________, a tax equal to the ________ is the socially efficient policy.
C. vertical; marginal abatement cost
D. vertical; marginal damages
Accessibility: Keyboard Navigation
Difficulty: Hard
Field - Chapter 14 #1
Learning Objective: 14-02 Explain which policies will minimize social losses when there is uncertainty about the MAC curves.
2. When there is uncertainty about the marginal abatement cost curve and the marginal damage cost
curve is ________, a transferable emission permit or a standard equal to the ________ is the socially
efficient policy.
C. vertical; socially efficient level of emissions
D. vertical; socially efficient level of abatement
Difficulty: Hard
3. An emission tax scheme will always have a higher private compliance cost than a transferable
emission permit scheme that achieves the same level of abatement.
FALSE
If the permits are initially allocated by auction, the private compliance cost of the TEP scheme will be
identical to the private compliance cost of the tax.

Difficulty: Moderate
Learning Objective: 14-01 Compare and contrast graphically and algebraically the social and private compliance costs of standards versus incentive-based
policies; incentives to innovate; and informational demands.
4. Individual standards have the same informational requirements as uniform standards.
FALSE
Individual standards require knowledge of each firm's marginal abatement cost functions as well as
the marginal damage cost.

Difficulty: Easy
Learning Objective: 14-01 Compare and contrast graphically and algebraically the social and private compliance costs of standards versus incentive-based
policies; incentives to innovate; and informational demands.
5. When there is uncertainty about the marginal abatement cost curve, the flatter the marginal damage
cost curve, the closer a standard or transferable emissions program will be to the socially efficient
equilibrium than a tax.
FALSE
Difficulty: Hard
6. When there is uncertainty about the marginal abatement cost curve, the steeper the marginal damage
cost curve, the closer a standard or transferable emissions program will be to the socially efficient
equilibrium than a tax.
TRUE
Difficulty: Hard
7. Under a standard, the polluter has an incentive to reveal a MAC that is lower than its true MAC.
FALSE
Difficulty: Hard
Learning Objective: 14-03 Describe the polluters incentive to reveal truthful information about its MAC curve under different policies.
8. Whether a polluter reveals its true MAC under a tax depends on the tax rate set by the regulator and
the polluter's true MAC.
TRUE
Difficulty: Hard
9. Under a tax, a polluter has no incentive to reveal an excessively high MAC relative to its true
MAC.
TRUE
Difficulty: Hard
10. Under a transferable emission permit scheme, a polluter has an incentive to reveal an excessively high
MAC relative to its true MAC.
FALSE
Difficulty: Hard
The following table summarizes the marginal abatement cost functions for an industry with three
Field - Chapter 14

14

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Accessibility: Keyboard Navigation

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