ch. 12 true/false

Question 1

A negative externality is incorporated into the supply-and-demand model by an upward
shift of the supply curve.

Answer 1

true

Question 2

A Pigovian tax will result in an increase in the equilibrium price and an increase in the equilibrium quantity.

Answer 2

false

Question 3

A Pigovian tax will eliminate negative externality damages.

Answer 3

false

Question 4

Providing a subsidy can increase social welfare in the presence of a positive externality.

Answer 4

true

Question 5

A positive externality is incorporated into the supply-and-demand model by a downward
shift in the demand curve.

Answer 5

false

Question 6

An upstream tax is one that is placed on goods and services after they have been
transported to markets for sale.

Answer 6

false

Question 7

A revenue-neutral tax is one that equalizes the cost to consumers and producers.

Answer 7

false

Question 8

Environmental taxes in the United States, as a percentage of total tax revenues, are equal
to the average of developed nations.

Answer 8

false

Question 9

The willingness-to-pay principle states that economic value of something equals the
maximum amount people are willing to pay for it.

Answer 9

true

Question 10

Total economic value equals the sum of ecosystem services and intrinsic value.

Answer 10

false

Question 11

The ability of trees to store excess carbon is an example of a nonuse benefit.

Answer 11

false

Question 12

The value that people obtain from knowing an ecosystem will be available to future
generations is an example of a nonuse benefit.

Answer 12

true

Question 13

Economists tend to prefer the replacement cost approach when estimating nonmarket values.

Answer 13

false

Question 14

Travel cost models are an example of a revealed preference method.

Answer 14

true

Question 15

Contingent valuation is an example of a stated preference method.

Answer 15

true

Question 16

The present value formula is PV(Xn) = Xn / (1+r)n

Answer 16

true

Question 17

Increasing the discount rate will result in a higher present value of a future benefit.

Answer 17

false

Question 18

The value of a statistical life estimates the cost of treating illnesses associated with
environmental damage.

Answer 18

false

Question 19

The precautionary principle states that policies should err on the side of caution when
there is a probability of a catastrophic outcome.

Answer 19

true

Question 20

The main advantage of a pollution standard is that it is a cost effective way to reduce
pollution.

Answer 20

false

Question 21

The main advantage of a technology standard is that enforcement and monitoring costs
tend to be relatively low.

Answer 21

true

Question 22

Most firms will respond to a pollution tax by reducing their pollution to zero.

Answer 22

false

Question 23

With a system of tradable pollution permits, the firms with the higher pollution reduction
costs will sell the most permits.

Answer 23

false

Question 24

Cost-benefit analysis of the U.S. Clean Air Act indicates that it has generated significant
net benefits.

Answer 24

true

Question 25

Comparison of gas prices with gasoline consumption across countries indicates an
inverse relationship.

Answer 25

true

Question 26

Environmental protection tends to increase economic growth in developing, but not
developed, countries.

Answer 26

false

Question 27

“Green” investments tend to particularly benefit the world’s poorest people.

Answer 27

true