Suppose there is a water shortage, and the governor proposes that the government distribute equal quantities of water to each person at no cost to the consumers
If consumers were forbidden to trade water, would such a distribution be Pareto optimal? A) Yes, because each person has the same amount of water as everyone else.
B) Yes, because everyone would be receive their water for free.
C) Not necessarily, as people may differ in their marginal rates of substitution between water and other goods.
D) It is impossible to determine without knowing the price of water.
E) none of the above
C
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If a stock's dividend is expected to grow at a constant rate of eight percent in the future
and it has just paid a dividend of $1.25 a share, and you have an alternative investment of equal risk that will earn a 12 percent rate of return, what would you be willing to pay per share for this stock? A) $31.25 B) $1.40 C) $1.25 D) $1.12
Refer to the above figure. The market equilibrium quantity is Q1. Point Q2 represents the optimal amount of production. The government can achieve the optimal outcome by
A) setting the price at P3. B) providing a per-unit subsidy to consumers equal to P3 - P1. C) providing a per-unit subsidy to consumers equal to P2 - P1. D) establishing a tax equal to P2 - P1 per unit of the good sold.
Imposing a tax on an activity that generates an external benefit will cause participants in the activity to increase the amount of the activity undertaken
a. True b. False
Firms that have downward-sloping demand curves:
a. earn positive economic profits even in the long run. b. produce homogeneous products. c. operate in a perfectly competitive market structure. d. enjoy monopoly or market power. e. are price takers.