Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?
The decision makers ignore it because it is not a resource that they have to "purchase" for the production process. If an industry or a firm were somehow forced to compensate persons who incur the costs of pollution, we would say that the industry had internalized the externality. There would be greater social efficiency if all of the costs of production were internalized. The firms would produce less and charge a higher price, but it would then include all the costs.
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A monopsony is a market in which
a. one firm is the sole producer of a good or service. b. one firm is the sole buyer of a good or service. c. firms encourage competition by starting "price wars" among competitors. d. firms collude in setting prices and levels of output.
The Mincer earnings function is used to estimate
A. ability bias. B. the age-earnings profile. C. the value of the marginal product of labor. D. the social return to schooling. E. the signaling effect.
A rise in X-inefficiency:
A. does not affect costs, only the price and quantity. B. shifts the ATC curve up. C. shifts the ATC curve down. D. shifts the ATC curve down or up, depending on the nature of the inefficiency.
The existence of inflation does which of the following?
A) facilitates the downward adjustment of real wages B) reduces shoe-leather costs C) reduces tax distortions D) reduces the costs associated with money illusion