Which of the following is an example of an automatic stabilizer?
a. public works
b. unemployment compensation
c. interest rates
d. highway spending
b. unemployment compensation
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When underproduction occurs,
A) producers gain more surplus at the expense of consumers. B) marginal cost is greater than marginal benefit. C) consumer surplus increases to a harmful amount. D) there is a deadweight loss that is borne by the entire society. E) the deadweight loss harms only consumers.
Suppose Smith's oil refinery and Jones' paper mill both pollute a river and both firms operate under a system of marketable pollution permits. If it costs Smith $45 to reduce pollution by 500 gallons per day, and Jones can reduce costs by $65 by increasing pollution by 500 units per day:
A. the firms cannot gain by trading the right to pollute. B. both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $30. C. both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $50. D. both firms can benefit if Jones trades the right to increase pollution by 500 gallons to Smith for $30.
Which of the following will cause the average fixed cost curve of making cigarettes to shift?
A) a $5 million penalty charged to each cigarette maker B) a $1 per pack tax on cigarettes C) a $3 per hour wage increase D) an increase in the demand for cigarettes
Suppose employees pay a bond of $1,000 to an employer. The gain from shirking is $400. Monitoring devices have been installed so that there is a 50% chance of being caught if you are shirking. The company is considering the installation of additional monitoring devices to increase the chance of catching a shirker to 100%. They feel this is needed to deter all shirking. What is your recommendation
to the company? Explain. What will be an ideal response?