A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account.Refer to the above figures. An external benefit exists. This will lead to a(n)
A. underproduction equal to Q4 minus Q3.
B. overproduction equal to Q4 minus Q3.
C. underproduction equal to Q1 minus Q2.
D. overproduction equal to Q1 minus Q2.
Answer: A
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Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. Suppose the price elasticity of supply is 0.7 . Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is 1.5?
If the average cost of producing 10 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.75, the average cost of producing 10 sweaters will be:
A. less than $6.50. B. $6.50. C. exactly $6.75. D. more than $6.50.
Exhibit 10-8 Aggregate demand and supply
In Exhibit 10-8, when aggregate demand shifts from AD4 to AD5, the economy experiences:
A. cost-push inflation. B. cost-pull inflation. C. demand-push inflation. D. demand-pull inflation.
Wage contracts, menu costs, and the minimum wage are explanations for why:
A. the aggregate demand curve slopes downward. B. there is little support for the existence of a real-balances effect. C. wages tend to be inflexible downward. D. competition results in price wars.