Describe how a Clarke tax is designed and explain how it leads a person to correctly reveal his preferences for a public good.
What will be an ideal response?
When a public good is provided using a Clarke tax, a person will be charged the cost of the public good minus the value that others claim they place on it. The person is taxed only if his revealed preference for the public good exceeds the amount of the tax; otherwise, the public good will not be provided. If the person feels that the public good is worth less than the amount of his tax, then he does not want the public good to be provided. If he overstates his preferences in this situation, he may get taxed for a public good that he really doesn't want. On the other hand, if the person values the public good more than the tax he would have to pay, then he does want the public good to be provided. If he understates his preferences in this case, he may not get the public good that he truly values. In either case, by truthfully revealing his preference, he gets the outcome he prefers.
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An open economy is one in which exports and imports constitute a large share of GDP.
Answer the following statement true (T) or false (F)
A firm could not be engaged in successful predatory pricing if: a. It charged prices greater than the average variable cost of production. b. It drove rivals out of the market
c. It raised its prices after its price cutting campaign. d. None of the above is true.
If the United States government wants to eliminate an unfavorable balance of trade, it could
a. reduce tariffs b. encourage imports c. reduce quotas on imports d. depreciate the dollar e. increase taxes on exported goods
A graph which maps the total costs of production against the amount made is called the
A. average cost function. B. production function. C. marginal cost function. D. cost function.