Refer to Pollutants. Suppose transactions costs are zero. Who should be made liable for the crop damage if the goal is to achieve an efficient outcome?
A chemical plant's production adds pollutants to a stream which irrigates a farm's crops. The pollutants damage the farm's crops, increasing the firm's costs by $800 per month. The crop damage may be eliminated in two ways: the chemical plant can install a new filtering system costing $300 per month, or the farm can install a new irrigation system costing $600 per month.
a. The chemical plant should be made liable, because it is the source of the pollution.
b. The chemical plant should be made liable, because it possesses the least-cost method of eliminating the externality.
c. The farm should be made liable, because it can receive a bribe from the chemical plant.
d. An efficient outcome will be achieved no matter who is made liable for the crop damage.
d. An efficient outcome will be achieved no matter who is made liable for the crop damage.
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An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease
If a player in a game has a dominant strategy, her choice will depend upon the strategy that another player has chosen.
Answer the following statement true (T) or false (F)
The treasury bill rate is the interest rate paid
A. on government securities that mature in less than a year. B. on government securities that mature in 30 years. C. on government securities that mature in 5 years. D. on government securities that mature in 10 years.
The argument in favor of rational expectations is that
A. people will continue to acquire information as long as the marginal benefit of that information is positive. B. individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. C. if expectations were not rational, there would be unexploited profit opportunities available. D. it is costless for individuals and firms to form rational expectations.