A negative externality or spillover cost (additional social cost) occurs when
A. the price of the good exceeds the marginal cost of producing it.
B. the total cost of producing a good exceeds the costs borne by the producer.
C. firms fail to achieve allocative efficiency.
D. firms fail to achieve productive efficiency.
Answer: B
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Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a
A. beneficial externality. B. public good. C. detrimental externality. D. moral hazard.
When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow
a. increases because the foreign company makes a portfolio investment in the U.S. b. declines because the foreign company makes a portfolio investment in the U.S. c. increases because the foreign company makes a direct investment in capital in the U.S. d. declines because the foreign company makes a direct investment in capital in the U.S.
Exhibit 20-3 Money market demand and supply curves
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In Exhibit 20-3, assume an equilibrium with an interest rate of 15 percent and the money supply at $100 billion. The Fed uses its policy tools to move the economy to a new equilibrium at E2 with money supply of $150 billion and an interest rate of 10 percent. This change could be the result of a(n):
A. open market sale of securities by the Fed. B. higher discount rate set by the Fed. C. higher required-reserve ratio set by the Fed. D. open market purchase of securities by the Fed.
In a model of the saving rate, which of these relationships is most crucial?
A) the effect of the saving rate on government spending B) the effect of government spending on the saving rate C) the effect of the saving rate on taxes D) the effect of taxes on the saving rate E) the effect of the saving rate on the real wage