A regional airport decides to extend a runway, increasing the amount of noise pollution on nearby homes. Assume that an optimal corrective tax can be applied
Should that tax be paid as compensation to the nearby homeowners? How might compensating the homeowners change their (and potentially others) incentives?
The key to this question is the reciprocal nature of the problem. If residential housing was not located near the airport, then the noise pollution would not be a problem. On the other hand, if the airport had not extended its runaway, then the noise pollution would not have been such a problem. Efficiency requires that both parties have an incentive to avoid the problem. The corrective tax should correct the incentives of the airport. Paying the revenues collected from the airport as compensation to the homeowners, however, would decrease the incentives homeowners would have to avoid the current problem as well as future problems.
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There are two firms in an industry and their products are perfect substitutes for each other. Each firm had a market share of 50% and charged equal prices
However, when the demand for the good declined due to a recession, Firm A lowered its price to increase sales. Firm B responded by lowering its price further. This is an example of the ________ of oligopoly. A) Bertrand model B) Cournot model C) Ricardian model D) Keynesian model
Rational expectations involve the assumption that
A) market participants make use only of information on the past performance of an asset in determining what they believe its price should be. B) market participants rarely change their minds about the correct price of an asset. C) financial markets are good at increasing liquidity, but poor at transmitting information. D) market participants makes use of all available information.
What is convergence hypothesis? Why should we expect convergence in the long run?
One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called
a. price-change neglect. b. unmeasured quality change. c. substitution bias. d. relative bias.