If the production of a good causes pollution (an external cost), is the unregulated competitive market equilibrium of that product efficient?
What will be an ideal response?
The presence of pollution means that the supply curve of the firm, which is also the firm's marginal cost curve, only represents the firm's private costs and ignores all external costs. The equilibrium between supply and demand curves leads to overproduction of this good. The amount produced, therefore, is not efficient because the level of production occurs where the marginal private cost equals the marginal (social) benefit rather than where the marginal social cost equals the marginal (social) benefit.
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Initially the nominal interest rate is 8 percent and the inflation rate is 5 percent. People know that the inflation rate increases to 10 percent. What is the new nominal interest rate?
A) 8 percent B) 3 percent C) 13 percent D) 11 percent
If a marginal cost pricing rule is imposed on the firm in the figure above, the deadweight loss will be
A) zero. B) $100. C) $200. D) $50.
Answer the following statements true (T) or false (F)
1. Monopsony is a market condition in which there is only one seller. 2. A bilateral monopoly is a circumstance where only one seller and only one buyer exist in a market. 3. The market structures of perfect competition and monopoly are polar extremes. 4. A bilateral monopoly has a single buyer on one side of the market and a single seller on the other side. 5. In second degree price discrimination, each customer is charged a different price.
If government has no debt initially but then annual revenues are $8 billion for 10 years while annual expenditures are $11 billion for 10 years, then the government has a:
A. deficit of $3 billion per year and a debt of $30 billion. B. deficit of $30 billion and a debt of $3 billion per year. C. surplus of $3 billion per year and a debt of $30 billion. D. surplus of $30 billion and a debt of $3 billion per year.