Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $120,000. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean, and $300,000 if it's polluted. Suppose there is no law preventing the firm from polluting the river. Which of the following describes an efficient outcome in this case?
A. The owner of the mill is unable to pay the farmer enough to secure his permission to pollute the river.
B. The farmer is unable to pay the owner of the mill enough to get him to stop polluting.
C. The owner of the mill pays the farmer $110,000 for his permission to pollute the river.
D. The farmer pays the owner of the mill $90,000 to stop polluting.
B. The farmer is unable to pay the owner of the mill enough to get him to stop polluting.
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Credit histories allow firms to
A) identify high-risk borrowers, so they can be eliminated and interest rates kept down for others. B) increase the number of credit cards issued, and interest rates go up as a result. C) increase the number of credit cards issued, and interest rates go down as a result. D) lower the number of credit cards issued, and interest rates go up as a result. E) increase market power in the credit card industry, raising interest rates.
Net exports must always be a positive amount
Indicate whether the statement is true or false
The circular flow model assumes:
A. businesses and households own the factors of production. B. businesses own the factors of production. C. government owns the factors of production. D. households own the factors of production.
Other things being equal, what is the effect of deficit spending on credit markets?
A. The demand for credit increases while the supply of credit remains constant. B. Both the demand for credit and the supply of credit will increase. C. The supply of credit will increase while the demand for credit remains the same. D. Both the demand for credit and the supply of credit will decrease.