Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels. This route is often preferred because:
A. the cost of the externality is unknown.
B. it requires less technological development.
C. it more heavily penalizes drivers who consume more gas than those who consume less.
D. only car drivers pay for the externality.
Answer: A
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Which of the following is NOT a predictable result of a price ceiling set below the market clearing price?
A) an illegal market in the good B) excess quantity supplied C) excess quantity demanded D) lines to purchase the product
The occurrence of the Great Depression offered evidence that supported
a. the classical theory of economics b. the need for the government to practice the policy of laissez faire c. the need for the government to control prices d. Congress to take action to stop rising prices e. the Keynesian idea that the government needed to guide the economy
In 1984, the South Carolina State Supreme Court ruled that a 20 percent admission tax on X-rated movies was unconstitutional. When the affected cinemas sought a refund of collected taxes, they were denied on the grounds that the tax, although collected by the theater, was indeed paid by the theatergoers. The Supreme Court apparently believed
a. the supply of X-rated movies was perfectly elastic. b. the demand for X-rated movies was perfectly inelastic. c. the legislation intended that the theatergoers pay the tax. d. the burden fell on the theatergoers-there are no excess burdens on the theater.
The term opportunity cost refers to the
A. value of what is gained when a choice is made. B. difference between the value of what is gained and the value of what is forgone when a choice is made. C. value of what is forgone when a choice is made. D. direct costs involved in making a choice.