You are having a party and one of your guests lights up a cigar without asking. Explain why this creates an externality
What will be an ideal response?
Smoking in an enclosed room forces other guests to inhale smoke which they would not have chosen to inhale if the decision was completely up to them. This external burden can range from headaches, being uncomfortable, and lung cancer. Of course, you could limit the externality by kicking the guest out.
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According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to
A) rise in the future. B) remain unchanged in the future. C) decline moderately in the future. D) decline sharply in the future.
A change in income will
a. affect the demand for candy through the income effect of a price change b. affect the quantity demanded of candy through the income effect of a price change c. shift the demand curve for candy d. have no effect on the demand for candy, because income is assumed constant along a demand curve e. affect quantity demanded only if candy is a normal good
A person who has auto insurance is likely to drive a little less safely and to take less care in parking their car in a safe place off the street. This is an example of a problem called:
A. externality. B. signaling. C. moral hazard. D. adverse selection.
Food and gasoline can be classified as
A. capital goods. B. durable goods. C. long-term goods. D. nondurable goods.