notes about Public Finance
Name -----------------------------------ID# -----------------------------------Public Finance
Homework 2
Due in class – October 28
There are 20 multiple-choice questions, each is worth 5 points for a total of 100 points plus one extracredit question. Please, write with pen, print and staple this HW.
I. Externalities
Problem: Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm.
Society’s marginal benefit from pollution reduction is given by MB = 590 – 3Qtot, where Qtot is the total reduction in pollution.
1. What is the socially optimal level of each firm’s pollution reduction?
a)
b)
c)
d)
e)
QA = 70, QB = 40
QA = QB = 55
QA = 40, QB = 70
QA > QB
None of the above
2. How much total pollution is there in the social optimum?
a)
b)
c)
d)
e)
0, in social optimum pollution must be reduced to zero
160
50
110
None of the above
3. Is it inefficient to give each firm an equal number of pollution permits if they are not allowed to trade them? a) Yes. B and A will have to abate the same amounts of pollution but at different marginal costs. At that point having B producing one more unit of pollution and A one less would keep total pollution the same but with a cost abatement that will go down to 154
b) Yes. B and A will have to abate the same amounts of pollution but at different marginal costs. At that point having B producing one more unit of pollution and A one less would keep total pollution the same but with a cost abatement that will go down to 132
c) No. Permits is always efficient, also when they are not tradable
d) No because the two firms have different costs and they cannot be compared
e) None of the Above
4. Can the social optimum be achieved using a tax on pollution?
a)
b)
Homework 2
Due in class – October 28
There are 20 multiple-choice questions, each is worth 5 points for a total of 100 points plus one extracredit question. Please, write with pen, print and staple this HW.
I. Externalities
Problem: Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm.
Society’s marginal benefit from pollution reduction is given by MB = 590 – 3Qtot, where Qtot is the total reduction in pollution.
1. What is the socially optimal level of each firm’s pollution reduction?
a)
b)
c)
d)
e)
QA = 70, QB = 40
QA = QB = 55
QA = 40, QB = 70
QA > QB
None of the above
2. How much total pollution is there in the social optimum?
a)
b)
c)
d)
e)
0, in social optimum pollution must be reduced to zero
160
50
110
None of the above
3. Is it inefficient to give each firm an equal number of pollution permits if they are not allowed to trade them? a) Yes. B and A will have to abate the same amounts of pollution but at different marginal costs. At that point having B producing one more unit of pollution and A one less would keep total pollution the same but with a cost abatement that will go down to 154
b) Yes. B and A will have to abate the same amounts of pollution but at different marginal costs. At that point having B producing one more unit of pollution and A one less would keep total pollution the same but with a cost abatement that will go down to 132
c) No. Permits is always efficient, also when they are not tradable
d) No because the two firms have different costs and they cannot be compared
e) None of the Above
4. Can the social optimum be achieved using a tax on pollution?
a)
b)