Suppose that the nation wide average cost of air pollution generated by a car is $1,000. Would a tax of $1,000 on every car induce people to take external costs into consideration and bring about the optimal price and output for autos? Explain
What will be an ideal response?
Not necessarily. The $1,000 is an average. Some cars cause more pollution and some less. Cars in Wyoming impose fewer external costs than cars in Los Angeles, and cars that are driven more miles pollute more. A system of pollution fines would be more effective in reducing pollution if the taxes differed depending on the make, with high-polluting cars taxed more, and if part of the tax were on gasoline to reflect cars driven more. We also would want taxes to differ depending on where the car was located.
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According to Tobin's q theory, when equity prices are high the market price of existing capital is ________ relative to new capital, so expenditure on fixed investment is ________
A) cheap; low B) dear; low C) cheap; high D) dear; high
Private disposable income is equal to
A) Y + TR + INT - T. B) Y + NFP + TR + INT - T. C) Y - TR - INT + T. D) Y + CA - G.
The demand curve facing the monopolistically competitive firm is:
A. flat. B. vertical. C. U-shaped. D. None of these statements is true.
Graphically, producer surplus is measured as the area:
A. under the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price. D. above the supply curve and below the actual price.