Explain the argument for why taxing externalities is an economically legitimate distortion
What will be an ideal response?
The purpose of a tax on externalities is to force decision makers to consider real costs that they otherwise would ignore. In the case of pollution, for example, the distortion caused by a tax is desirable. Instead of causing an excess burden, it results in an efficiency gain.
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The Fed's use of the ________ as an operating target in the 1970s resulted in ________ monetary policy
A) federal funds rate; countercyclical B) federal funds rate; procyclical C) M1 money supply; countercyclical D) M1 money supply; procyclical
Since its beginning, the cable television industry has been viewed as a natural monopoly. Typically, cities would grant individual firms local monopolies and then regulate them. Is this a valid approach from an economic perspective? What do you expect the future of the television-viewing market to hold?
Suppose you heard a person speaking about two graphs. You couldn't make out quite what they were saying, but you saw that since 1920, the variable on the left graph showed a decreasing value, and the variable on the right graph showed an increasing value. If they asserted that the left graph variable's decrease therefore caused the right variable's increase, you would be
A. not yet convinced because you understand the fallacy of composition. B. correctly convinced that they were wrong. C. convinced of the soundness of their argument. D. not yet convinced because you understand that causation and correlation are not the same.
If the Fed has a strong preference for stable output relative to prices, the ________ curve is relatively ________.
A. AS; flat B. AD; flat C. AS; steep D. AD; steep