In many large cities auto commuters are given quantity discounts on tickets to use bridges, tunnels, and toll roads. Some argue that these discounts are a subsidy to traffic congestion and air pollution. Do you agree? Explain
What will be an ideal response?
The answer depends primarily on the elasticity of demand for these tickets. If demand is elastic, the discounts would encourage commuters to drive more than they otherwise would. This is tantamount to a subsidy to traffic congestion and air pollution. If demand is highly inelastic, the subsidy would not contribute as much to congestion and air pollution because most commuters would drive at the higher price of individual tickets. It is interesting to note that if demand is inelastic, while pollution might not be abated by charging the full price, there is an added benefit of increased toll revenues. Therefore, it would seem to make little sense from an economic standpoint to offer discount tickets, unless there is a traffic congestion problem as a result of having to sell individual tickets.
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A market that involves only one seller of a good or service is known as
a. a monopoly b. perfect competition c. monopolistic competition d. an oligopoly e. perfect monopolistic competition
A tariff is a tax restriction on imported goods.
a. true b. false
The figure below shows the domestic demand (Dd) and domestic supply (Sd) curves of mopeds in a country before an import quota is imposed by the government. After the imposition of the quota, the maximum import quantity is QQ.
If the government auctions the quota licenses, the importing nation will
A. gain $21.5 million. B. lose $29.75 million. C. lose $10 million. D. gain $31.5 million.
What is moral hazard?
What will be an ideal response?