The diamond-water paradox was solved by knowing that
A) the total utility of water is greater than the total utility of diamonds.
B) the marginal utility of water is greater than the marginal utility of diamonds.
C) the price of water and diamonds is determined by total utility received, not marginal utility.
D) the price of water and diamonds is determined by marginal utility, not total utility.
Answer: D
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A sales tax on sellers a good leads to a loss of consumer surplus, but a price ceiling or a price floor on that same product will not
Indicate whether the statement is true or false
When transactions costs are low, private actions to correct externalities are usually feasible
a. True b. False
When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that
A) the firm's marginal cost curve must be flat. B) the firm's marginal costs of production never fall below $5. C) the firm's average cost of production was less than $10. D) the firm's total cost of producing 100 tons is less than $1000. E) the minimum value of the firm's average variable cost lies between $5 and $10.
Both signaling and screening:
A. reduce efficiency in the market. B. are effective ways to increase information available to both parties. C. benefit the sellers but harm the buyers. D. benefit the buyers but harm the sellers.