Chapter 08 - Benefit-Cost Analysis: Costs

Chapter 08
Benefit-Cost Analysis: Costs

Multiple Choice Questions

1. Illegal roadside dumping resulting from the introduction of waste disposal charges is one
example of the ________ of an environmental policy.
A. pollution control cost
B. enforcement cost
C. unintended consequences
D. before/after result

Difficulty: Easy

2. Resources devoted to monitoring the behavior of firms, agencies, and individuals subject to
environmental regulations are called ________.
A. abatement costs
B. enforcement costs
C. private costs
D. environmental costs
Difficulty: Easy

Table 8.1

Production costs before the regulation $ 200

Production costs in the future, without the regulation $ 250
Production costs in the future, with the regulation $ 290

3. If the with/without principle were applied to estimate the change in cost due to a new
environmental regulation, the added costs due to the new regulation would be ________.
A. $90
B. $40
C. $50
D. $290

Difficulty: Easy

8-1
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Chapter 08 - Benefit-Cost Analysis: Costs

4. If the before/after principle were applied to estimate the change in cost due to a new
environmental regulation, the added costs due to the new regulation would be ________.
A. $90
B. $40
C. $50
D. $290

Difficulty: Easy

5. Suppose a manufacturing firm that is about to be regulated faces the following actual and
potential production costs: 1) $4,000 before regulation; 2) $4,550 in the future without the
regulation; and 3) $5,200 in the future with the regulation. The true cost of the proposed
regulation, invoking the with/without principle, is ________.
A. $550
B. $1,200
C. $650
D. impossible to determine from the information provided.

Difficulty: Easy.

6. Suppose a manufacturing firm that is about to be regulated faces the following actual and
potential production costs: 1) $2,500 before regulation; 2) $2,925 in the future without the
regulation; and 3) $3,240 in the future with the regulation. The before/after cost of the
regulation is ________ and the with/without cost of the regulation is ________.
A. $425; $740
B. $425; $315
C. $740; $315
D. $315; $425

Difficulty: Easy.

7. A city is evaluating a proposal to build a recycling depot. If a generous citizen is willing to

donate land for the project with a current market value of $800,000, the ________ of the land
is ________.
A. social opportunity cost; $0
B. social opportunity cost; unknown
C. private cost to the city; $800,000
D. social opportunity cost; $800,000

Difficulty: Moderate

8-2
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Chapter 08 - Benefit-Cost Analysis: Costs

8. Social costs are equal to

A. private welfare – social welfare
B. private costs + social welfare
C. private costs – external costs
D. private costs + external costs

Difficulty: Moderate

9. An example of a cost to a private group that is not a cost from the standpoint of society is
A. the cost of inputs
B. a tax
C. pollution
D. opportunity cost

Difficulty: Moderate

10. Another term for pollution taxes is ___________. These are payments from one group,
the polluters, to another group, the administering agency or beneficiary of the tax.
A. transfer payments
B. opportunity costs
C. external costs
D. enforcement costs

Difficulty: Moderate

11. Environmental protection and control programs can also have adverse environmental
effects and additional costs. Some of these effects and costs include
A. Media switching
B. Unforeseen impacts as consumers and firms adjust to new programs
C. Mitigating programs meant to reduce or avoid additional environmental impacts
D. all of the above

Difficulty: Easy

12. Enforcement costs for new protective programs include

A. resources devoted to monitoring the behavior of firms
B. relaxed enforcement on other regulations
C. both A. and B. are types of enforcement costs
D. neither A. nor B. are an example of enforcement costs

Difficulty: Easy

8-3
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Chapter 08 - Benefit-Cost Analysis: Costs

13. Cost of environmental quality programs can be estimated at a variety of different levels.
Perhaps the most straightforward level would be
A. costs of single facilities
B. costs of a local regulation
C. costs of regulating an industry
D. costs at the national level
Difficulty: Easy

14. When examining the costs associated with a local regulation, the affected local
community believes the local social costs are high and
A. the broader social opportunity costs are high
B. the broader social opportunity costs are low
C. industry production is often reduced
D. industry employment rates are often impacted
Difficulty: Easy

15. When providing costs associated with industry regulations that allow firms latitude in
their response, the analysis must first begin with
A. identification of alternatives that firms might pursue
B. the impact that the regulation has on production
C. the impact that the regulation has on employment
D. the impact that the regulation might have on product prices
Difficulty: Easy

16. Cost data gathered to construct a representative firm

A. is collected by surveying current firms in the industry
B. can be misrepresentative when the industry is comprised of heterogeneous firms
C. is typically more accurate for historical costs than future costs under new regulations
D. all of the above
Difficulty: Easy

17. If the before/after principle were applied to estimate the change in cost due to a new
environmental regulation, the added costs due to the new regulation would be ________.
A. $90
B. $40
C. $50
D. $290
Difficulty: Easy

8-4
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 08 - Benefit-Cost Analysis: Costs

18. When evaluating proposals for building a new municipal sewage treatment plant, a
benefit-cost analysis does not have to include the cost of the land if it is to be donated.
A. does not have to include the cost of the land if it is donated.
B. must include the value of the land even if it is donated.
C. may or may not include the cost of the land if it is donated, depending on whether the
donor is a private or public entity.
D. benefit-cost studies are not appropriate for municipal projects.
Difficulty: Easy

19. A region is considering two sites on which to locate a new wastewater treatment plant.
Site A has been owned by the region for five years and the region initially paid $200,000 for
the land. The current market value of the site is $400,000. Site B is land the region would
have to purchase for $300,000. What is the social opportunity cost of each site?
A. $200,000 for Site A; $300,000 for Site B
B. $300,000 for Site A; $300,000 for Site B
C. $400,000 for Site A; $300,000 for Site B
D. The social opportunity cost should be state for the project, not each site and would be equal
to the lowest value for either site, $200,000

Difficulty: Moderate

8-5
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Chapter 08 - Benefit-Cost Analysis: Costs

20. Refer to the Figure above. Panel (a) represents an industry that has experienced cost
increases due to environmental regulations. The price increase that the industry experiences,
from p1 to p2 is
A. is equal to the cost increase, from c1 to c2
B. is less than the cost increase, from c1 to c2
C. is greater than the cost increase, from c1 to c2
D. cannot be accurately stated from the picture

Difficulty: Easy

21. Refer to the Figure above. Panel (b) represents an industry that has experienced cost
increases due to environmental regulations. The price increase that the industry experiences,
from p1 to p2 is
A. is equal to the cost increase, from c1 to c2
B. is less than the cost increase, from c1 to c2
C. is greater than the cost increase, from c1 to c2
D. cannot be accurately stated from the picture

Difficulty: Easy

22. Refer to the Figure above. Panel (a) and Panel (b) represent industries that have
experienced cost increases due to environmental regulations. Assume that both price
increases are equivalent. Which panel reflects less impact on the consumer and a large
industry adjustment, in terms of fewer workers and less output?
A. Panel (a) reflects a larger industry adjustment
B. Panel (b) reflects a larger industry adjustment
C. Panel (a) and Panel (b) reflect the same industry impact
D. The graphs do not indicate which industry is affected more by the regulations

Difficulty: Moderate

23. Refer to the Figure above. In Panel (a), the increase in cost of producing the original
quantity of output at the new cost associated with increased environmental regulations would
be
A. p2 x q1
B. ( a + b + c)
C. p2 x q2
D. p1 x q1

Difficulty: Moderate

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Chapter 08 - Benefit-Cost Analysis: Costs

24. Refer to the Figure above. In Panel (b), the increase in cost of producing the original
quantity of output at the new cost associated with increased environmental regulations would
be
A. p2 x r1
B. ( d + e + f)
C. p2 x r2
D. p1 x r1

Difficulty: Moderate

25. When environmental economists and policymakers examine the question of how
environmental regulations impact the macro economy
A. they examine the expenditures made throughout the economy for pollution control
B. they employ macro economic modeling to determine the relationship between pollution
control expenditures and national economic performance
C. they use bottom up and/or top down methods
D. all of the above

Difficulty: Moderate

26. When estimating the future costs of adopting future technology for environmental
protections and the relevant time horizon is 10 years or longer, the cost projections are
complicated due to
A. uncertainty regarding what technology will be available
B. uncertainty regarding the availability of technology for widespread adoption
C. uncertainty regarding the impact that future technology will have on costs
D. all of the above

Difficulty: Easy

27. In effect, the production of power (electricity) without pollution control leads to
production distortions and is equivalent to
A. public subsidies for agriculture
B. coastal flood zone insurance
C. neither A nor B
D. both A and B

Difficulty: Easy

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Chapter 08 - Benefit-Cost Analysis: Costs

28. A cost baseline analysis entails

A. an estimation of what costs would be for a firm/industry without any environmental
regulations
B. an exact accounting of costs for a firm/industry with existing regulations at the moment
C. the estimation of what the firm/industry future cost levels could be expected to be in the
absence of a proposed regulation
D. the estimation of what the firm/industry future/industry cost levels would be if the
proposed environmental legislation were enacted

Difficulty: Easy.

29. When an environmental regulation is enacted, firms and/or industries may experience
adjustment costs in terms of reduced output. Firms and industries with a ____________
demand curve will experience _____________ adjustments in output.
A. steeper; greater
B. steeper; less
C. flatter; greater
D. flatter; less

Difficulty: Easy.

30. One of the critical elements of success for long run technical change and pollution cost
controls in all manufacturing industries is the status and health of the
A. government
B. states rights
C. envirotech industry
D. cost accounting systems

Difficulty: Easy.

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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.