TAILIEUCHUNG - ENVIRONMENTAL ECONOMICS

Discussion Questions & Answers: Cf: F & O (2005) and F, O, & F (2002) Q1. Why should a tax on gasoline provide a larger incentive to reduce air emissions from motor vehicles than an annual tax on owning a vehicle? Answer: The answer depends upon the magnitude of the fuel tax relative to the vehicle tax. A fuel tax targets the three components of emission reduction (. a) number of vehicles on the road; b) miles per vehicle; and c) emissions per mile). On the other hand, an annual tax affects only the marginal decisions to put a car. | Environmental Economics Guide Questions Problem Sets Answers Supplementary to Environmental Economics Teachers Manual Developed for Undergraduate Environmental Economics Course August 2005 Economy and Environment Program for Southeast Asia Lecture 1 Introduction TOPIC 1 What is Environmental Economics Discussion Questions Answers Cf F O 2005 and F O F 2002 Q1. Why should a tax on gasoline provide a larger incentive to reduce air emissions from motor vehicles than an annual tax on owning a vehicle Answer The answer depends upon the magnitude of the fuel tax relative to the vehicle tax. A fuel tax targets the three components of emission reduction . a number of vehicles on the road b miles per vehicle and c emissions per mile . On the other hand an annual tax affects only the marginal decisions to put a car on the road including purchases or retirement of a car . However if the vehicle tax was sufficiently high such that very few people put a car on the road then emissions might fall relative to a low fuel tax as people can only drive a given car a maximum amount per day. Since such a high vehicle tax is politically unfeasible equity reasons then it is still likely that a fuel tax will have larger impact on emissions reduction. Q2. What factors influence the trade-offs illustrated in the production possibility frontier How can environmental policy affect these trade-offs Answer Both technological capacity of the economy and ecological facts could influence the trade-offs along PPF. Adverse impacts on the environment occur due to flows of resources from the natural world into the economy and the release of residuals during production and consumption. Any technological innovations that reduce inputs or residuals per unit output would shift the PPF upwards which means more goods are being produced per unit of environmental quality. This is the case from recycling and re-using technologies. Policy can also influence tradeoffs by providing incentives to consumers and .

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• gasoline provide a larger
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• number of vehicles on the road
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