13

Student: ___________________________________________________________________________

Suppose there are two firms in an industry with marginal abatement cost curves:
MACA = 400 - 2EA
MACB = 900 - 3EB
1. If the government regulator has chosen a target level of total emissions to be 400 units per year,
________ permits will need to be issued and they will trade for ________ per permit.
A. 100; $200
B. 100; $120
C. 400; $200
D. 400; $120
2. If the government regulator has chosen a target level of total emissions to be 240 units per year,
________ permits will need to be issued and they will trade for ________ per permit.
A. 240; $312
B. 240; $180
C. 260; $312
D. 260; $180
3. A polluter will ________ its emissions and sell its excess permits on the market if the market price is
________ or equal to its MAC at its chosen emission level.
A. reduce; less than
B. reduce; greater than
C. increase; less than
D. increase; greater than
4. One solution to the hot spot problem is to use a(n) ________.
A. ambient-based TEP system
B. cap-and-trade system
C. emissions-based TEP system
D. baseline-and-credit system
5. The ________ established an innovative permit-trading scheme for the control of airborne SO2 emissions
in ________.
A. 1990 Clean Air Act Amendments; Canada
B. 1990 Clean Air Act Amendments; the United States
C. Canadian Environmental Protection Act; Canada
D. Cross-State Air Pollution Rule; the United States
6. A polluter will buy a permit if the price is less than or equal to its MAC of controlling emissions.
True False
7. Transferable emission permit programs work best if there is little competition among buyers and sellers
of permits.
True False
8. Transferable emission permit schemes provide the same incentive to invest in R&D to find cheaper
methods of reducing emissions as emission taxes that achieve the same level of abatement.
True False
9. The EPA's TEP program for SO2 was the first large-scale example of a system of transferable emission
permits tried in the United States.
True False
10. The EPA's TEP program for SO2 gave producers an incentive to look for cheaper ways of lowering
emissions because increasing scarcity of permits drove their price up.
True False
11. The EPA's TEP market allowed firms to use whatever means they found the cheapest to reduce SO2
emissions rather than dictating the technology to be used.
True False
12. Suppose there are two firms in an industry with marginal abatement cost curves:
MACA = 1,200 - 2EA
MACB = 800 - 2EB
If the regulator wants to use a transferable emission permit scheme to achieve industry abatement of 50%,
how many permits will it need to issue and at what price will they trade? If each firm receives one-half of
the permits at no charge, explain what permit trading will take place and calculate the total compliance
cost of each firm under this form of regulation.

13. Suppose there are two firms in an industry with marginal abatement cost curves:
MACA = 2,400 - 4EA
MACB = 1,400 - EB
If the regulator wants to use a transferable emission permit scheme to achieve industry abatement of
50%, how many permits will it need to issue and at what price will they trade? If the firms must buy their
permits in an auction calculate the total compliance cost of each firm under this form of regulation.

14. Briefly explain why firms have an incentive to monitor each other's permit usage under a transferable
emission permit scheme.
 13 Key
Suppose there are two firms in an industry with marginal abatement cost curves:
MACA = 400 - 2EA
MACB = 900 - 3EB
Field - Chapter 13
1. If the government regulator has chosen a target level of total emissions to be 400 units per year,
________ permits will need to be issued and they will trade for ________ per permit.
A. 100; $200
B. 100; $120
C. 400; $200
D. 400; $120
Accessibility: Keyboard Navigation
Difficulty: Moderate
Field - Chapter 13 #1
Learning Objective: 13-01 Describe the general principles of a transferable emission permit (TEP) and show graphically how it can achieve a cost-effective
equilibrium.
2. If the government regulator has chosen a target level of total emissions to be 240 units per year,
________ permits will need to be issued and they will trade for ________ per permit.
A. 240; $312
B. 240; $180
C. 260; $312
D. 260; $180
Accessibility: Keyboard Navigation
Difficulty: Moderate
Field - Chapter 13 #2
Learning Objective: 13-01 Describe the general principles of a transferable emission permit (TEP) and show graphically how it can achieve a cost-effective
equilibrium.
3. A polluter will ________ its emissions and sell its excess permits on the market if the market price is
________ or equal to its MAC at its chosen emission level.
A. reduce; less than
B. reduce; greater than
C. increase; less than
D. increase; greater than
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #3
Learning Objective: 13-01 Describe the general principles of a transferable emission permit (TEP) and show graphically how it can achieve a cost-effective
equilibrium.
4. One solution to the hot spot problem is to use a(n) ________.
A. ambient-based TEP system
B. cap-and-trade system
C. emissions-based TEP system
D. baseline-and-credit system
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #4
Learning Objective: 13-02 Explain the pragmatic issues in setting up a TEP system covering: initial rights allocation; trading rules; non-uniformly mixed pollutants;
non-competitive markets; enforcement; and incentives for innovation.
5. The ________ established an innovative permit-trading scheme for the control of airborne SO2
emissions in ________.
A. 1990 Clean Air Act Amendments; Canada
B. 1990 Clean Air Act Amendments; the United States
C. Canadian Environmental Protection Act; Canada
D. Cross-State Air Pollution Rule; the United States
Accessibility: Keyboard Navigation
Difficulty: Moderate
Field - Chapter 13 #5
Learning Objective: 13-03 Describe the key features of the U.S. sulphur dioxide TEP system and how it achieved target levels of emissions cost effectively.
6. A polluter will buy a permit if the price is less than or equal to its MAC of controlling emissions.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #6
Learning Objective: 13-01 Describe the general principles of a transferable emission permit (TEP) and show graphically how it can achieve a cost-effective
equilibrium.
7. Transferable emission permit programs work best if there is little competition among buyers and
sellers of permits.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #7
Learning Objective: 13-02 Explain the pragmatic issues in setting up a TEP system covering: initial rights allocation; trading rules; non-uniformly mixed pollutants;
non-competitive markets; enforcement; and incentives for innovation.
8. Transferable emission permit schemes provide the same incentive to invest in R&D to find cheaper
methods of reducing emissions as emission taxes that achieve the same level of abatement.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #8
Learning Objective: 13-02 Explain the pragmatic issues in setting up a TEP system covering: initial rights allocation; trading rules; non-uniformly mixed pollutants;
non-competitive markets; enforcement; and incentives for innovation.
9. The EPA's TEP program for SO2 was the first large-scale example of a system of transferable
emission permits tried in the United States.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #9
Learning Objective: 13-03 Describe the key features of the U.S. sulphur dioxide TEP system and how it achieved target levels of emissions cost effectively.
10. The EPA's TEP program for SO2 gave producers an incentive to look for cheaper ways of lowering
emissions because increasing scarcity of permits drove their price up.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #10
Learning Objective: 13-03 Describe the key features of the U.S. sulphur dioxide TEP system and how it achieved target levels of emissions cost effectively.
11. The EPA's TEP market allowed firms to use whatever means they found the cheapest to reduce SO2
emissions rather than dictating the technology to be used.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Field - Chapter 13 #11
Learning Objective: 13-03 Describe the key features of the U.S. sulphur dioxide TEP system and how it achieved target levels of emissions cost effectively.