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1.What is the double dividend hypothesis?
(a) The idea that Pigouvian taxes give firms an incentive to innovate and eventually lead to even greater reductions in pollution in the future.
(b) The idea that tax revenue collected from Pigouvian taxes could be used to offset other, more distortionary taxes like income or employment taxes.
(c) The idea that that tax revenue collected from Pigouvian taxes could be used to subsidize investment in clean technology. (d) A system where polluters pay up front to enter an industry and then receive a rebate for each unit of abatement.
2.Suppose there are two different polluters on the outskirts of Flagstaff Arizona, one on each end of town. Due to wind direction, the damages from polluter A’s emissions is 3 times greater than the damages from polluter B. Assuming firms have the same abatement costs, the efficient pollution tax should:
(a) Charge A 3 times as much as B.
(b) Charge B 3 times as much as A.
(c) Charge both polluters the same.
(d) Not enough information.
3.Which of the following is true about the comparison of Pigouvian taxes vs. “cap and trade” systems? Circle all that apply.
(a) Taxes lead to uncertain emissions reductions but give certainty about marginal abatement costs.
(b) Cap and trade systems lead to uncertain emissions reductions but give certainty about marginal abatement costs.
(c) Taxes lead to uncertain marginal abatement costs but give certainty about emissions reductions.
(d) Cap and trade systems lead to uncertain marginal abatement costs but give certainty about emissions reductions.
4.Which of the following is true about cap and trade systems? Circle one.
(a) They lead to a pattern of reductions that satisfies the equimarginal principle.
(b) They do not give strong incentives to innovate, compared to Pigouvian taxes.
(c) They are much easier to enforce than Pigouvian taxes.
(d) They lead to a fairer distribution of costs and benefits than technology standards.