Assume an EPA Official Observes the Following Situation in a Small

question 237

Multiple Choice

Assume an EPA official observes the following situation in a small town on the banks of a river. The town depends heavily on fish for its food and is heavily dependent on coal for its power. A coal factory on the banks of the river empties pollutants into the river causing health problems among the residents and the fish to develop toxic residues in their livers and other organs. Which of the following solutions should the EPA choose to mitigate this negative externality problem (at least in the short run) ?
I. levy taxes on the coal factory's production of pollutants
II. levy taxes on the consumers' consumption of fish
III. create a market for tradable allowances
IV. subsidize firms that produce clean fish

• A) I and III only
• B) II and IV only
• C) III and IV only
• D) I, III, and IV only

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Definitions:

Yerkes-Dodson Law

The psychological principle stating that performance is best under conditions of moderate arousal rather than either low or high arousal.

Moderate Arousal

Refers to an optimal level of alertness or physical and mental activation at which performance on a task is best.

Cholecystokinin (CCK)

a hormone that is released by the intestines in response to eating certain foods and stimulates the digestion of fat and protein.

Motivation

The process that initiates, guides, and maintains goal-oriented behaviors, driving individuals to pursue and achieve their objectives.