Refer to the above figure. S1 is the supply curve that includes only private costs. S2 is the supply curve that includes social costs. If the firm sets output by focusing on private costs, the per-unit external cost will equal
A. P4 - P1.
B. P2.
C. P4 - P2.
D. P2 - P1.
Answer: A
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Under laissez-faire, the allocation of scarce resources among the different industries
A. is possible only with government tax and subsidy policies. B. is accomplished by the price system. C. requires a considerable amount of central planning. D. is the result of consumer planning.
In the Keynesian model, short-run equilibrium occurs
A) where the IS and LM curves intersect. B) where the IS curve, LM curve, and FE lines intersect. C) where the IS curve intersects the FE line. D) where the LM curve intersects the FE line.
Banks are better at solving the stockholder-lender conflict than rating agencies when they
A) are allowed to hold a substantial ownership stake in the borrowing firm. B) steer clear of holding any ownership stake in the borrowing firm. C) operate in markets-oriented financial systems. D) issue individually-approved loans rather than lines of credit.
Disinvestment occurs when:
A. Businesses sell machinery and equipment to one another B. The prices of investment goods rise faster than the prices of consumer goods C. Businesses have larger inventories at the end of the year than they had at the start D. The consumption of private fixed capital exceeds gross private domestic investment