Which of the following is a TRUE statement?
A. Opportunity costs turn external costs into social costs.
B. Opportunity costs always exist with whoever has property rights.
C. Voluntary agreements can always yield a situation in which all externalities are internalized.
D. Any property right system will yield a situation in which all externalities are internalized.
Answer: B
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Which of the following is true about an individual's choice of insurance assuming state-independent tastes?
A. Full insurance will be chosen from a full menu of actuarily fair insurance if tastes are risk averse. B. No insurance will be chosen if the menu of insurance contracts is actuarily unfair and tastes are risk averse. C. No insurance will be chosen if the menu of insurance contracts is actuarily unfair and tastes are risk-neutral. D. (a) and (b) are true. E. (a) and (c) are true. F. (b) and (c) are true. G. All of the above. H. None of the above
An increase in government spending will have the greatest expansionary impact on the economy if it is combined with:
a. an increase in tax revenue equal to the increase in spending. b. a decrease in tax revenue equal to the increase in spending. c. unchanged tax revenue. d. none of these is true.
Table 5.3National Income Accounts (dollar figures are in billions)Expenditures for consumer goods and services$8,200Exports$1,700Government purchases of goods and services$2,500Social Security taxes$1,900Net investment$1,400Indirect business taxes$1,400Imports$1,900Gross investment$1,800Corporate income taxes$600Personal income taxes$1,500Corporate retained earnings$130Net foreign factor income$100Government transfer payments to households$1600Net interest payments to households$500On the basis of Table 5.3, the value of the income aggregate that is defined as "after-tax income of consumers" (also known as disposable income) is
A. $10,070 billion. B. $10,600 billion. C. $8,570 billion. D. $11,570 billion.
One major assumption of economics is that people
A) act as if they systematically pursue self-interest. B) behave randomly without any predictable pattern. C) are sometimes rational and sometimes irrational. D) always pursue the interests of others.