How do Pigouvian taxes help in reducing pollution?
What will be an ideal response?
Pollution is an example of a negative externality in that it imposes costs on people otherthan those causing the pollution. In such a case, the social marginal cost of producingthe good that causes pollution exceeds its private marginal cost by the amount of thenegative externality, causing the good to be overproduced. A Pigouvian tax on the good canbe used to reduce the amount of pollution by forcing firms to internalize the cost to societyfrom their pollution. The tax is the difference between marginal social cost and marginalprivate cost; such a tax would reduce the quantity of the good produced to the sociallyoptimal level.
A-head: ECONOMICS OF THE ENVIRONMENT
Concept:Pigouvian taxes
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Which of the following functions of money would be violated if inflation were high?
A) store of value B) medium of exchange C) unit of account D) certificate of gold
According to the interest rate effect, a decrease in the price level will
A) decrease the real value of money balances, which causes total planned real expenditures to increase. B) cause interest rates to fall, which generates an increase in borrowing, so that total planned real expenditures increase. C) lead to a decrease in net exports, which causes total planned real expenditures to decrease. D) increase the real value of money balances, which causes interest rates to increase, thereby reducing total planned expenditures.
Your income rises from $1,000 a year to $10,000 and your purchases of beer increase from 10 to 20. What number below most closely approximates your income elasticity over this range?
A. 2.5 B. 4 C. 1 D. 0.4
Which of the following assigns widely followed bond ratings?
A. The Wall Street Journal B. The Nasdaq C. Moody's Investor Service D. The Federal Reserve