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CHAPTER 3: TEST BANK SOME ANSWERS AND COMMENTS ON THE TEXT DISCUSSION QUESTIONS 1. Businesses and consumers pollute because there is an economic incentive to do so. Pollution, whether it is due to highly polluting energy sources, failure to use certain technology, or refusal to adapt conservation measures, occurs because it is the cheaper alternative. Consumers who burn their garbage, buy non-recyclables, or discard their newspapers do so because it is cheaper (in time or money) than the other alternatives. 2. The beer and paper example shows how resources are over-allocated to the production of goods whose production entails pollution, and how resources are under- allocated to the production of goods whose production requires the additional expense of cleaning up someone else’s pollution. 3. Costs are varied and include: the cost of more expensive, but less polluting energy sources and other inputs the cost of anti-pollution technology, including scrubbers for smokestacks, catalytic converters for cars and so on the cost of pollution clean-up the cost of maintaining safe landfills the cost of time in consumer recycling the cost of layoffs in industries which reduce their output in response to rising costs of production through pollution standards or fees the cost to businesses in the form of falling profits as costs of production rise the cost to consumers in the form of higher prices that they pay for products produced by firms with rising costs of production through pollution standards or fees We should not be willing to sacrifice everything in order to eliminate all pollution because we need to balance the costs and benefits of pollution control. (This is the economist’s argument. Students will have their own arguments as to why we should eliminate all pollution!) 4. While local government is “closer to the governed”, the federal government has the resources for and the national interest in pollution control, especially because pollution generated in one area can easily spread to other areas. 5. Negative externalities: residential locations near prisons or landfills, loss of wildlife and aesthetic beauty as highways and shopping malls are built in rural areas. Positive externalities: business firms that provide child care for their workers’ children,
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business firms that train workers or support their further education, business firms and residences that beautify their property (trees, flowers, etc.). 6. Standards: These seem simple and straight-forward, but uniform standards fail to address the pollution harm to clean versus already polluted water and slow versus fast moving water, and do not account for the variations in marginal costs of pollution control. Specific standards are better, but are difficult to implement. Incentive-based pollution control (taxes, subsidies, improved convenience of recycling, pollution permits, etc.) allows research and development of least-cost technology and production processes to control pollution, allows the costs as well as the benefits of
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This note was uploaded on 04/11/2011 for the course ECON chapter10 taught by Professor Amy during the Spring '11 term at 아주대학교.

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