Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Because firms face increasing marginal costs to reduce pollution, the demand curve for pollution permits will be:
A. downward sloping.
B. perfectly inelastic.
C. upward sloping.
D. perfectly elastic.
Answer: A
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Joe's income is $500, the price of food (F, y-axis) is $2, and the price of shelter (S, x-axis) is $100. Which of the following bundles is in Joe's opportunity set?
A) 50 units of food, 5 units of shelter B) 200 units of food, 2 units of shelter C) 100 units of food, 1 unit of shelter D) 150 units of food, 3 units of shelter
A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers. If the firm is competitive in both the market for pretzels and in the market for pretzel-makers, then it has
a. some control over both the price of pretzels and the wage it pays to its workers. b. no control over the price of pretzels but some control over the wage it pays to its workers. c. some control over the price of pretzels but no control over the wage it pays to its workers. d. no control over either the price of pretzels or the wage it pays to its workers.
Using the asset model of short-run exchange rate determination, once the domestic rate of return is determined by MS and MD, the short-run equilibrium ___ can be determined if prices are inflexible and expectations are given.
a. interest rate b. exchange rate c. price level d. income level
Assume that an economy experiences both positive population growth and technological progress. A reduction in the saving rate will cause
A) no change in K/NA. B) a permanent reduction in the rate of growth of output per worker. C) a permanent reduction in the rate of growth of output. D) no change in Y/NA. E) none of the above