Explain how a Pigovian tax works
What will be an ideal response?
A Pigovian tax is a method of dealing with externalities. The government sets the tax rate equal to the marginal external cost, making polluting firms behave in the same way as they would if they bore the cost of the externality directly because their costs are the same as if they paid for the pollution directly. In this case, the amount of pollution is reduced to the efficient level.
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Everything else held constant, a decrease in the currency ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier
A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
All of the following are barriers to entry in an industry EXCEPT
A) a patent. B) governmental restrictions. C) low marginal tax rates. D) economies of scale.
The ease with which any financial asset, such as your checking account, your savings account, or your certificate of deposit (CD), can be converted into a medium of exchange (to buy, say, a fish sandwich at McDonald's) is referred to as its
a. velocity b. accessibility c. convertibility d. availability e. liquidity
In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?
A. At that point (economic) profit is zero. B. Below that point average revenue becomes less than marginal revenue. C. Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. D. Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.