A farmer notices that a neighboring rancher's cattle are wandering and destroying some of his crops. The farmer decides to offer a payment to the rancher if the rancher will reduce the size of his herd. By doing so, the farmer
A. indicates to the rancher that there is an opportunity cost to the wandering of the cattle, and thereby internalizes the externality.
B. can be sure that the size of the herd will be reduced and the size of his own harvest will be increased.
C. inadvertently bears the costs of the externality when the rancher should be liable for the costs.
D. informs the rancher that the cattle have destroyed crops, which should induce the farmer to build a fence in order to maintain good relations.
Answer: A
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Explain the ways in which the government can persuade private businesses to invest more in order to speed up the process of capital formation?
Empirical research has shown that:
A. during the 1980s and 1990s, the velocity of money actually decreased as the opportunity cost of holding money increased. B. in the 1990s and 2000s, velocity was less sensitive to an increase in the opportunity cost of holding money than in the 1980s. C. in the 1990s and 2000s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s. D. during the 1980s and 1990s, the velocity of money was not sensitive to changes in the opportunity cost of holding money.
The PPF between goods X and Y will be a downward-sloping
A) straight line if increasing opportunity costs exist. B) straight line if decreasing opportunity costs exist. C) curve that is bowed inward if increasing opportunity costs exist. D) straight line if constant opportunity costs exist.