1. Classify the following pollution-control policies as command-and-control or market incentive based.
   1. A state emissions tax on the quantity of carbon emitted by each firm.
   2. The federal government requires domestic auto companies to improve car emissions by 2020.
   3. The EPA sets national standards for water quality.
   4. A city sells permits to firms that allow them to emit a specified quantity of pollution.
   5. The federal government pays fishermen to preserve salmon.
2. Suppose a city releases 16 million gallons of raw sewage into a nearby lake. The following table shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)

	Total Cost (in thousands of dollars)	Total Benefits (in thousands of dollars)
16 million gallons	Current situation	Current situation
12 million gallons	50	800
8 million gallons	150	1300
4 million gallons	500	1650
0 gallons	1200	1900

1. Using the information from the table to calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See the Cost and Industry Structure chapter if you need a refresher on how to calculate marginal costs.
2. What is the optimal level of sewage for this city?
3. Why not just pass a law that zero sewage can be emitted? After all, the total benefits of zero emissions exceed the total costs.
4. What is an externality?
5. Is zero pollution an optimal goal? Why or why not?
6. In the Land of Purity, there is only one form of pollution, called "gunk." Table 12-18 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations are chosen.

Combos	Eco Output	Gunk Cleaned Up
J	800	10%
K	500	30%
L	600	40%
M	400	40%
N	100	90%

1. 1. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis.
2. 2 Which choices display productive efficiency? How can you tell?
3. 3 Which choices show allocative efficiency? How can you tell?
4. 4 In the choice between K and L, can you say which one is better and why?
5. 5 If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?