PUP 3002 Exam 2 Questions with
Correct Answers
What are the 3 Tools used for Correcting Externalities? - ANSWER-1. Consumption
Tax
2. Subsidy
3. Output Standards
What is a Consumption Tax? - ANSWER-An Extra Cost given to producers to reflect
their true Supply Slope (one that accounts for the Negative Externalities)
How do you find the Consumption Tax? - ANSWER-Get the Difference of the Y-
Intercepts.
(From the Regular Supply Slope and the Negative Externality Supply Slope)
When does a Consumption Tax create Societal Efficiency? - ANSWER-When,
tax/unit = externality cost/unit
What are 2 Problems with Consumption Taxes? - ANSWER-1. Information Problems
(3 Kinds)
2. Political Problems (3 Kinds)
What are the 3 Kinds of Information Problems with Consumption Taxes? Describe
Them. - ANSWER-1. Measuring Damage: How do we Actually and Accurately
measure the True Cost of the Externality?
2. Compliance: How can we possibly make sure that Businesses will Comply? If they
feel the Tax is unjust, they will try to fight it.
3. Connecting The Problem in Complex Scenarios: How do we know if this Capital
Good is the True Source of the Externality, etc? (OO)
What are the 2 Kinds of Political Problems with Consumption Taxes? Describe
Them. - ANSWER-1. It May Be Politically Damaging:
2. Leaders May Not Want To Upset Their Constituency that do not favor a Tax
(EX:- Tax on Gasoline -Tax on High Emission Vehicles) (OO)
What is a Positive Externality? - ANSWER-When Private Transactions between
Producers and Consumers produce some sort of Benefit for a 3rd Party.
Why are Positive Externalities Inefficient? - ANSWER-Without Subsidies, the
Benefiting 3rd Party does not pay for their benefit and the true Benefit of the good is
lower than it actually should be.
,The good then gets under-provided, even though it has these societal benefits,
which is inefficient.
What is the purpose of a Subsidy in correcting Positive Externalities? - ANSWER-It
reduces the Cost of Production or Consumption for the Beneficial Good and
incentivizes Producers to Produce More of it.
What are Output Standards? - ANSWER-Policies designed to Regulate the
Practices/Behaviors of Firms/Consumers.
What needs to be created in order to Implement and Enforce Output Standard
Policies? - ANSWER-Federal Bureaucracies.
What are the Cons of Output Standards? - ANSWER-1. The Costs may > Benefits
2. Creating a Bureaucracy can be Expensive
What are the Pros of Output Standards? - ANSWER-1. You don't have the Calculate
the Externality
2. Politically Feasible: Citizens don't see the added price/cost of the good directly
Which Collective Action Problem causes the most problems in Environmental
Policy? - ANSWER-Tragedy of the Commons.
Collective Action Problems + Common Pool Resources = ??? - ANSWER-Tragedy
of the Commons (again).
What are the 5 Components of Public Attitude that are useful when trying to gauge
Public Opinion on the Environment? - ANSWER-1. Direction
2. Intensity
3. Stability
4. Salience
5. Knowledge
Define Direction. - ANSWER-The Level of Support a Citizen assigns to a specific
policy.
How does the Environment rank in terms of Direction? - ANSWER-Citizens tend to
be highly supportive of Environmental Regulation.
Define Intensity. - ANSWER-How Strongly a Citizen Feels about a certain issue.
Define Stability. - ANSWER-How Volatile a Citizen's Attitude is over time.
How does the Environment Tend to Rank in terms of Intensity and Stability? -
ANSWER-Increases in Spending/Regulatory Standards tend to Fairly Intense &
Highly Stable.
Define Salience. - ANSWER-How Relatively Important an Issue is in comparison to
other issues.
, What is the basic suggestion of Cross Cutting Cleavages? - ANSWER-Citizens have
a wide array of preferences that probably won't be 100% met by any one candidate;
therefore, they will vote for the candidate that most aligns with their preferences.
How does the Environment tend to rank in terms of Salience? - ANSWER-The
Environment has Generally Low Salience.
Define Knowledge. - ANSWER-How aware a Citizen is to their own Personal
Responsibility in contributing to an issue.
Given that the Environment has Fairly High levels of Direction, Intensity, and
Stability, how do you expect the Government to act on Environmental Issues? -
ANSWER-You'd expect Low Amounts of Action from the Gov due to the Low Amount
of Salience.
If constituents care about other issues, then vote-seeking politicians will place those
issues higher on their agendas, meaning that even though the Environment is a big
issue that people care care about, they still won't actively seek policy solutions.
In terms of Importance to Citizens, where does the Environment typically rank? -
ANSWER-Either 2nd to Last, or Right Near the Bottom.
What are the Top 5 Most Important Issues to Citizens? - ANSWER-1. The Economy
2. Healthcare
3. Government Spending
4. Job Creation
5. Social Security
What are the Top 5 Least Important Issues to Citizens? - ANSWER-1. War in
Afghanistan
2. The Environment
3. Immigration
4. National Security
5. Small Business
What Kind of Policies do Citizens prefer? - ANSWER-Policies that Benefit Society at
the Cost of Private Corporations/Large Polluters (instead of them).
(Citizens want a better environment, but aren't willing to pay for it).
When did Public Concern over Environmental Issues begin to rise? - ANSWER-
1950's-1960's.
Why do Environmental Policies ever get passed? - ANSWER-Because of
Environmental Catastrophes/Access to New Info.
What was the Love Canal Catastrophe? - ANSWER-Some business was caught
dumping a lot of toxic materials into a "love canal" near a residential area.
What was Silent Spring (1962)? - ANSWER-A book that brought some
Environmental Policy issues to the attention of the public.
Correct Answers
What are the 3 Tools used for Correcting Externalities? - ANSWER-1. Consumption
Tax
2. Subsidy
3. Output Standards
What is a Consumption Tax? - ANSWER-An Extra Cost given to producers to reflect
their true Supply Slope (one that accounts for the Negative Externalities)
How do you find the Consumption Tax? - ANSWER-Get the Difference of the Y-
Intercepts.
(From the Regular Supply Slope and the Negative Externality Supply Slope)
When does a Consumption Tax create Societal Efficiency? - ANSWER-When,
tax/unit = externality cost/unit
What are 2 Problems with Consumption Taxes? - ANSWER-1. Information Problems
(3 Kinds)
2. Political Problems (3 Kinds)
What are the 3 Kinds of Information Problems with Consumption Taxes? Describe
Them. - ANSWER-1. Measuring Damage: How do we Actually and Accurately
measure the True Cost of the Externality?
2. Compliance: How can we possibly make sure that Businesses will Comply? If they
feel the Tax is unjust, they will try to fight it.
3. Connecting The Problem in Complex Scenarios: How do we know if this Capital
Good is the True Source of the Externality, etc? (OO)
What are the 2 Kinds of Political Problems with Consumption Taxes? Describe
Them. - ANSWER-1. It May Be Politically Damaging:
2. Leaders May Not Want To Upset Their Constituency that do not favor a Tax
(EX:- Tax on Gasoline -Tax on High Emission Vehicles) (OO)
What is a Positive Externality? - ANSWER-When Private Transactions between
Producers and Consumers produce some sort of Benefit for a 3rd Party.
Why are Positive Externalities Inefficient? - ANSWER-Without Subsidies, the
Benefiting 3rd Party does not pay for their benefit and the true Benefit of the good is
lower than it actually should be.
,The good then gets under-provided, even though it has these societal benefits,
which is inefficient.
What is the purpose of a Subsidy in correcting Positive Externalities? - ANSWER-It
reduces the Cost of Production or Consumption for the Beneficial Good and
incentivizes Producers to Produce More of it.
What are Output Standards? - ANSWER-Policies designed to Regulate the
Practices/Behaviors of Firms/Consumers.
What needs to be created in order to Implement and Enforce Output Standard
Policies? - ANSWER-Federal Bureaucracies.
What are the Cons of Output Standards? - ANSWER-1. The Costs may > Benefits
2. Creating a Bureaucracy can be Expensive
What are the Pros of Output Standards? - ANSWER-1. You don't have the Calculate
the Externality
2. Politically Feasible: Citizens don't see the added price/cost of the good directly
Which Collective Action Problem causes the most problems in Environmental
Policy? - ANSWER-Tragedy of the Commons.
Collective Action Problems + Common Pool Resources = ??? - ANSWER-Tragedy
of the Commons (again).
What are the 5 Components of Public Attitude that are useful when trying to gauge
Public Opinion on the Environment? - ANSWER-1. Direction
2. Intensity
3. Stability
4. Salience
5. Knowledge
Define Direction. - ANSWER-The Level of Support a Citizen assigns to a specific
policy.
How does the Environment rank in terms of Direction? - ANSWER-Citizens tend to
be highly supportive of Environmental Regulation.
Define Intensity. - ANSWER-How Strongly a Citizen Feels about a certain issue.
Define Stability. - ANSWER-How Volatile a Citizen's Attitude is over time.
How does the Environment Tend to Rank in terms of Intensity and Stability? -
ANSWER-Increases in Spending/Regulatory Standards tend to Fairly Intense &
Highly Stable.
Define Salience. - ANSWER-How Relatively Important an Issue is in comparison to
other issues.
, What is the basic suggestion of Cross Cutting Cleavages? - ANSWER-Citizens have
a wide array of preferences that probably won't be 100% met by any one candidate;
therefore, they will vote for the candidate that most aligns with their preferences.
How does the Environment tend to rank in terms of Salience? - ANSWER-The
Environment has Generally Low Salience.
Define Knowledge. - ANSWER-How aware a Citizen is to their own Personal
Responsibility in contributing to an issue.
Given that the Environment has Fairly High levels of Direction, Intensity, and
Stability, how do you expect the Government to act on Environmental Issues? -
ANSWER-You'd expect Low Amounts of Action from the Gov due to the Low Amount
of Salience.
If constituents care about other issues, then vote-seeking politicians will place those
issues higher on their agendas, meaning that even though the Environment is a big
issue that people care care about, they still won't actively seek policy solutions.
In terms of Importance to Citizens, where does the Environment typically rank? -
ANSWER-Either 2nd to Last, or Right Near the Bottom.
What are the Top 5 Most Important Issues to Citizens? - ANSWER-1. The Economy
2. Healthcare
3. Government Spending
4. Job Creation
5. Social Security
What are the Top 5 Least Important Issues to Citizens? - ANSWER-1. War in
Afghanistan
2. The Environment
3. Immigration
4. National Security
5. Small Business
What Kind of Policies do Citizens prefer? - ANSWER-Policies that Benefit Society at
the Cost of Private Corporations/Large Polluters (instead of them).
(Citizens want a better environment, but aren't willing to pay for it).
When did Public Concern over Environmental Issues begin to rise? - ANSWER-
1950's-1960's.
Why do Environmental Policies ever get passed? - ANSWER-Because of
Environmental Catastrophes/Access to New Info.
What was the Love Canal Catastrophe? - ANSWER-Some business was caught
dumping a lot of toxic materials into a "love canal" near a residential area.
What was Silent Spring (1962)? - ANSWER-A book that brought some
Environmental Policy issues to the attention of the public.
