Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking. Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums. Also, smokers hurt nonsmokers as a result of “passive smoke.” The Rand Corporation estimates these costs to be 29 cents per pack of cigarettes. Cigarette taxes average 37 cents per pack. Based on the economist’s definition of efficiency, it follows that
A. cigarette taxes are too high, and cigarette production is lower than the efficient amount.
B. cigarette taxes should be increased until external costs are zero.
C. since the tax exceeds the marginal cost, we have a better than efficient outcome.
D. we are overconsuming cigarettes.
Answer: A
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A U.S. tariff imposed on items that can be produced more cheaply abroad
A) benefits Americans by making these goods cheaper. B) makes the goods more expensive in foreign markets. C) creates a deadweight loss. D) makes the world market more efficient.
If the income elasticity of demand for a good is negative, this means that:
a. only the poor will buy the good. b. as incomes fall, less will be spent on the good. c. as incomes rise, the demand for the good will fall. d. the good does not obey the law of demand.
The equation of exchange states that:
a. money supply multiplied by real output equals velocity. b. velocity multiplied by money supply equals the selling price times the quantity of actual output. c. money supply divided by velocity equals nominal GDP. d. money supply divided by velocity equals real GDP.
When DVD players start becoming obsolete then, to potential thieves, the:
A. Marginal utility of stealing them increases B. Marginal utility of stealing them decreases C. Marginal cost of stealing them increases D. Marginal cost of stealing them decreases