Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where
a. the value of electricity to consumers equals the private cost of producing electricity.
b. the value of electricity to consumers equals the social cost of producing electricity.
c. the cost of the externality is maximized.
d. the transaction costs of private bargaining are minimized.
a
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If the Fed’s monetary policy causes a substantial decrease in interest rates, what is the most likely impact on velocity?
A. Velocity will decrease. B. Velocity will increase. C. Velocity will remain constant. D. Velocity is unrelated to interest rates.
The required reserve rate set by the Fed is ten percent of all checkable deposits. A bank sells $1 million of U.S. Treasury securities it owns to the Fed. Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.
What will be an ideal response?
In this chapter we are told that people's tastes not only can differ but must differ. This is because
A. genetic programming makes it impossible for people to have the same preferences. B. no two persons could have the same preferences. C. people with differing tastes can profitably invade any population of similar tastes. D. homogeneous populations become complacent and lose their vigilant qualities.
On any given day we know a salesman can earn $0 with a 40% probability, $100 with a 20% probability or $300 with 40% probability. His expected earnings equal
A) $0. B) $140. C) $300. D) It cannot be determined from the available information.