If a good generates an external cost, the market will produce
a. some of the good but not enough
b. too much of the good.
c. an optimal amount of the good.
d. none of the good.
Ans: b. too much of the good.
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A monopolistically competitive firm derives its ability to influence price from: a. the perfectly elastic demand curve it faces
b. barriers to entry. c. its product, which is differentiated in some way from competing products. d. its position as the sole supplier in the market.
In the presence of Regulation Q, when interest rates would rise, _____
a. the transaction demand for money in the economy would increase b. people would invest in the bond markets c. the economy would grow faster d. people would withdraw money from banks seeking higher interest rates elsewhere e. the U.S. dollar would depreciate
A country currently is using all its land to produce wheat and grapes. However, the land most suited to growing grapes is being used to produce wheat, and the land most suited to growing wheat is being used to produce grapes. Which of the following statements is true?
a. The country is operating outside of its production possibilities frontier. b. The country is operating along its production possibilities frontier. c. Wheat production must be sacrificed if the country increases grape production. d. Grape production must be sacrificed if the country increases wheat production. e. The country is operating inside its production possibilities frontier.
A basic problem with the infant-industry argument is that:
A. most industries need protection when they are mature, not when they are first established. B. the amount of the tariff is unlikely to have much impact on the success of an infant industry. C. political pressure will likely prevent the withdrawal of the tariff when the industry matures. D. domestic consumers will continue to buy the foreign products anyway, regardless of the tariff.