Reading Passage Question

States do vary substantially in the pollution abatement expenses (PAE) they impose on the chemical industry and in their ability to attract that industry's capital. This variation is not accounted for by frostbelt/sunbelt differences; variance within each region rendered differences between regions insignificant. Variation in ability to attract new capital shares is, however, related to private PAE; interstate variance in pollution abatement expense explains more than half the 1977 1981 change in states' ability to attract a share of the chemical industry's new capital.

In addition to the straightforward statistical findings, these data suggest that, for the chemical industry, the relationship between resource allocation and environmental costs may not be linear. While states that impose high pollution abatement costs tend to compete unsuccessfully for new capital, those who impose the lowest marginal costs are not necessarily the most successful in increasing their share of new capital. Rather, there appears to be a PAE threshold; when a state exceeds it, the state loses capital to states that remain below it. In all likelihood states with limited capacity to socialize the costs of environmental regulation must exceed that marginal-cost threshold to meet federally imposed environmental standards while states with greater fiscal capacity can meet such standards without exceeding the threshold and compete for developmental resources on the basis of other incentives.

Firmer conclusions are limited by some implicit caveats and design limitations. First, our findings tell us little about the relationship between overall quality of environmental protection and the allocation of CAP (chemical and allied producers') resources. We do not, therefore, know whether the adequacy of regulation is affected by economic development. Second, our conclusions are limited to our sample and time frame. Third, we could not, in this exploratory study, control the possibility that our statistical relationships are the spurious artifact of other, unexamined, effects. Finally, we have not controlled for the possibility that a large relative pollution abatement expense in 1977 may be accounted for partially by an exodus of resources before 1977 that left relatively fixed expenses to be balanced against a shrinking pool of shipments.

Solutions and Explanation

1. According to the passage, what is the relationship between PAE costs and attracting new capital?

1. There is no relationship between regulation costs and attracting business.
2. States with the lowest business costs always get the most business.
3. Higher costs attract more business.
4. High regulation levels encourage greater competitiveness in business.
5. Once above a certain threshold, there high regulation causes a negative impact on business.

2. States with greater fiscal capacity:

1. can meet federal environmental standards and compete for resources on the basis of other incentives
2. must exceed marginal-cost threshold
3. can control quality of environmental protection
4. can adjust pollution abatement costs to increase share of new capital
5. can balance quality and cost of environmental protection

3. Which of the following is not a statistical finding summarized in this passage?

1. The ability of states to attract chemical industry capital varies greatly.
2. Variance in ability to attract chemical industry capital is not explained by frostbelt/sunbelt differences.
3. Pollution abatement expenses imposed by states on the chemical industry vary greatly.
4. Quality of environmental protection and attraction of new capital correlate strongly.
5. Variance within regions renders differences between regions insignificant.

“States do vary substantially in the pollution abatement expenses (PAE)”- is a topic of the GMAT reading comprehension passage. This GMAT reading comprehension passage measures the skills of the candidates in interpreting the sets of questions. The candidates must have sufficient skills in the English language to do this English GMAT reading comprehension. The GMAT Reading Comprehension Practice Questions help students to enhance their reading skills.

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