Why do polluting firms overproduce? Use a completely and correctly labeled graph to illustrate your answer
An appropriate diagram should resemble Figure 15-2 from the textbook. As reviewed in the current chapter, polluting firms produce with a detrimental externality; and they do not pay the full social cost of production. With a lower price, they can move along the demand curve to a higher quantity demanded and will sell more. As indicated in Chapter 15, an externality will result in allocative inefficiency-the price of the last unit produced is less than the marginal social cost.
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Which of the following is true of an extensive-form game?
A) The sum of the payoffs to the players in the game is always constant. B) It involves simultaneous decision making by the players. C) It involves sequential decision making by the players. D) The players in the game earn equal payoffs in equilibrium.
Private capital flows in the form of both direct and portfolio investment began to return to Latin America after 1989, effectively marking the end of the Lost Decade
Indicate whether the statement is true or false
With the self-correcting mechanism, if a negative demand shock occurs,
a. a decrease in wage rates will lead to a decrease in the price level so that the economy returns to full employment b. the price level will increase, causing equilibrium GDP to return to its original level c. the wage rate will eventually increase, restoring GDP to its full-employment level d. the price level will remain constant e. there will be no effect in the long run
The rational expectations theory indicates that expansionary policy will
a. stimulate real output in the long run but not in the short run. b. expand real output and employment if the public quickly anticipates the effects of the expansionary policy. c. equalize real and nominal interest rates during lengthy periods of inflation. d. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.