Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $75,000. 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 farmer is unable to pay the owner of the mill enough to get him to stop polluting.
B. The owner of the mill pays the farmer $87,500 in compensation for its pollution.
C. The farmer pays the owner of the mill $112,500 to stop polluting.
D. The farmer pays the owner of the mill $87,500 to stop polluting.
D. The farmer pays the owner of the mill $87,500 to stop polluting.
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Expansionary fiscal policy
A) can be effective in the short run. B) can be effective in the long run. C) causes complete crowding out in the short run. D) is never effective because of crowding out.
Assume the price elasticity of supply for grade wheat has been estimated to be +0.82. This means that when the price of wheat increases by 10 percent, the quantity of wheat supplied to the market increases by 82 percent
Indicate whether the statement is true or false
The flypaper effect is _____
a. that government grants get shifted around to other uses b. that government grants get spent on what they were intended to be spent on c. that government grants are used to lower tax rates d. that government grants are not used by local governments
If the economy in the graph shown is currently at point B, and the government enacts contractionary fiscal policy, in the short run the economy will most likely move to point:
A. A
B. It is likely to be unaffected and stay at point B
C. C
D. D