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BASD505 Practise Exam Solutions

BASD505 Practise Exam Solutions - Section I True or False...

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Section I: True or False Indicate if you think the statement is true or false; and provide a brief rationale for your choice. 1. If the annual damage done by water water pollution is $10 billion each year and the annual expenditure on efforts to reduce water pollution is $10 million, strengthening efforts to control water pollution must improve economic efficiency. True False 2. The aggregate marginal willingness to pay curve for a non-rival good is constructed by hori- zontally summing individual demand curves. True False 3. If abatement of a particular uniformly-mixed pollutant is carried out in a socially efficient manner, the marginal abatement costs of all sources must be the same. True False 4. The privately optimal level of an activity that generates a positive externality is greater than the social optimal level because marginal external benefit is greater than zero. True False Section II: Multiple Choice For each question, choose the best answer from the options provided. 1. Suppose there are two polluting firms, where e 1 = 100 and e 2 = 200. If total emissions are to be reduced by 50% in a way that minimizes total abatement costs, then (a) both firms must reduce emissions by the same amount (b) both firms must reduce emissions by the same percentage (c) firm 2 must reduce by a greater percentage than firm 1 (d) there is not enough information to know how much each firm should reduce emissions D
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